Walmart joins Microsoft bid for TikTok

TikTok's potential sale of its US operations again made headlines when Walmart said on Thursday it would link with Microsoft in pursuing the popular video-sharing platform.

The world's largest retailer said in a statement that "a potential relationship with TikTok US in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omni-channel customers as well as grow our third-party marketplace and advertising businesses".

While analysts described Walmart's move as a surprise, they largely agree that it fits the company's strategy.

Walmart has been ramping up its online business in recent years. The coronavirus pandemic has shown the importance of e-commerce to retailers. Walmart's online sales doubled during the second quarter.

If the deal is approved, Walmart could access TikTok's hundreds of millions of users in the US as potential consumers of Walmart products or as a lucrative audience for online advertisements.

"If anyone is wondering why Walmart is looking at TikTok, take a look at how Pinduoduo (a Chinese social e-commerce platform) growth-hacked WeChat to be the No 2 e-commerce platform in China," said Alan Tikwart Alden, a California-based investor focusing on emerging markets, adding that it's a "very smart move" for Walmart to gain customers.

Oliver Chen, a senior equity research analyst at Cowen and Co, said that with TikTok's users mostly being adolescents, the platform would help Walmart appeal to a new and younger demographic, while also supporting customer engagement and loyalty.

High-margin marketplace

The app could be especially helpful in growing and promoting Walmart's high-margin third-party marketplace and generate more ad revenue for the company, he said.

Joe Feldman, an analyst at investment banking firm Telsey Advisory Group, noted that Tik-Tok's proven technology strength in building user engagement could help Walmart better understand how to capture the attention of young people and transform them into lifelong shoppers.

TikTok has been under scrutiny by the administration of US President Donald Trump for months over so-called national security concerns. On Aug 6, Trump issued an executive order pushing the app's Chinese parent company Byte-Dance to sell its US operations by mid-September, or he would ban the app entirely in the US.

Since then, Microsoft has been considered a front-runner among the suitors for TikTok, including Oracle and Twitter.

The race to acquire the video app has entered its final stages, with two groups submitting bids, one from Microsoft and Walmart and the other from Oracle, and could include a coalition of investors, according to The New York Times, citing sources involved in the deal talks. A deal could be reached in the coming days, according to the sources.

TikTok has filed a lawsuit against the Trump administration, seeking to block the Aug 6 executive order. It argues that the administration violates the company's constitutional rights to due process and free speech.

Though it's not clear how the lawsuit would play out, it would be hard for the administration to ban the app entirely in the US, experts said.