Microsoft (MSFT) Partnering with Walmart (WMT) on the TikTok Transaction Highlights the Increasing Importance of Social Media in Retial

August 28, 2020 6:37 AM

RBC analysts covering Microsoft (Alex Zukin), Walmart (Scot Ciccarelli) and social commerce (Mark
Mahaney) published a combined note on the potential strategic transaction of Walmart (NYSE: WMT) combining with Microsoft (NASDAQ: MSFT) in pursuit of TikTok. Walmart released a statement saying, "The way TikTok has integrated ecommerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets. We believe 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 omnichannel customers as well as grow our third-party marketplace and advertising businesses. We are confident that a Walmart and Microsoft partnership would meet both the expectations of US TikTok users while satisfying the concerns of US government regulators." Each analyst was positive on the transaction with a different spin on the impact to the space he covers:

Scot Ciccarelli thinks that Walmart "may envision tech-centric companies like TikTok as a potential profit subsidy for their massive retail operations ($500b+ worldwide) and Microsoft appears to be an appealing strategic partner (Walmart uses Microsoft’s backend Azure) as both companies battle Amazon on multiple fronts".

Alex Zukin thinks that a Walmart/Microsoft/TickTok combination "would enable a secondary value proposition both for the end-user and the advertiser by leveraging Walmart's eCommerce and sizeable logistics back end to enable a Social Commerce angle, which is something that is likely to facilitate greater platform engagement".

Social Media is increasingly acting as a marketing front for Retail noted by Mark Mahaney who stated "Our survey work earlier this year found a rise in Social Commerce – 23% of U.S. Instagram
users reported making a purchase on Instagram vs. 15% in late 2019. Facebook and Instagram have
materially accelerated their shopping/selling tools and options within the past 6 months".

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