Will TikTok be Walmart's Weapon against Amazon?

Ed Ponsi

Walmart, the world's biggest retailer, is rumored to be in discussions along with Microsoft (MSFT) for a buyout of viral web app TikTok. The price is said to be between $20 billion and $30 billion dollars. 

If the deal goes through, Walmart will have access to TikTok's 800 million users. TikTok has a young demographic, with 69% of its users falling between the ages of 13 and 24. 

Why should Walmart make this deal? A TikToK deal could make Walmart's online sales skyrocket. While Walmart is the world's largest retailer, it trails far behind Amazon (AMZN) in online sales. 

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Source: eMarketer

Speaking of Amazon, on August 20th, I told you Amazon was about to break out of an ascending triangle pattern. On August 26th, the stock broke out. According to the chart, Amazon is headed to $3600. 

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Shares of Amazon currently trade at 130x earnings, while Walmart shares are only worth 22x earnings. If Walmart can eat into Amazon's online sales, the retailer might achieve a higher valuation. 

amz vs wmt

Let's assume a stronger online presence causes the stock to be re-rated with a multiple of 30. What would that do to the stock? If Walmart traded at 30x earnings, the stock would trade at about $185 per share. 

The bottom line: growing the online business is what this deal's really all about. If I'm Amazon, I'd consider a counter-bid for TikTok. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.