Walmart Inc.’s bid for the video-sharing social networking service TikTok is a way for the retail giant to reach younger consumers, which will be key to the company’s long-term growth, analysts say.
Walmart WMT, +2.68% and Microsoft Corp. MSFT, +1.02% are teaming up on an offer to purchase the video sharing site. In a statement, Walmart said the deal has the potential to benefit the company’s e-commerce and advertising businesses.
“We believe a potential relationship with TikTok U.S. in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses,” Walmart said in a statement.
More than that, TikTok is known for tapping into what’s hot in pop culture, reaching young audiences and influencers.
“The potential deal is a younger customer opportunity, a demand and marketing engagement opportunity and a technical/relationship/leadership opportunity as well – given new capabilities,” wrote Cowen analysts led by Oliver Chen.
Cowen notes that Walmart already has a strong presence on the site. Further involvement with TikTok will add to all of the existing benefits.
“[W]e note Walmart’s excellent momentum on the Tik Tok app including 290,000 followers and 1.8 million likes,” Cowen said.
Cowen highlights TikTok’s eye-popping numbers as well: 92 million active monthly users in June, and more than 100 million in August.
“Current Tik Tok content features higher margin attractive categories including apparel, beauty, and makeup with videos including: dudes reviews masks, beauty mystery hauls, rockin’ college dance competitions, and know-your-stuff makeup brushes. We view this content as engaging, fun, and body positive – key characteristics for new and younger customer acquisition.”
Cowen rates Walmart stock outperform with a $155 price target.
“[C]onnecting with a younger audience is vital to Walmart’s long-term outlook, especially as more digitally-native generations move into their prime consumption years,” wrote UBS analysts led by Michael Lasser.
“Having a better understanding of these younger consumers through their social media habits would be valuable to Walmart.”
UBS also thinks it’s a good idea for Walmart to get closer to Microsoft as shopping habits change. Walmart and Microsoft have worked together previously, with the two companies and others partnering on a majority stake in Flipkart.
“[T]he lines are blurring between traditional shopping, digital shopping, and social media,” UBS said. “Walmart needs more exposure to this trend. Thus, we see the rationale in Walmart forging a closer relationship with Microsoft and TikTok.”
UBS rates Walmart shares buy with a $148 price target.
“Key ad formats include brand takeovers, hashtag challenge, branded lenses, and in-feed video,” said KeyBanc Capital Markets analysts led by Edward Yruma.
“We think that TikTok uniquely plays to the strength of influencers and viral content and would give Walmart unique reach into the 13-to-40-year-old age bracket.”
And TikTok would give Walmart an outlet for further interaction with its key marketplace sellers, KeyBanc said.
KeyBanc rates Walmart stock overweight with a $150 price target.
Walmart stock rose 2.7% in Friday trading. For 2020 to date, the stock has rallied 18%.
The Dow Jones Industrial Average DJIA, +0.56% is up 0.4% for the year to date.