Reuters
ReutersNEW YORK (Reuters Breakingviews) - When a slow-growth company like Walmart starts talking about going “omnichannel” by splurging on a hot new technology, it’s time to worry. The retail behemoth confirmed on Thursday that it’s teaming up with Microsoft to make an offer for the U.S. business of video app TikTok, whose Chinese owner ByteDance is being compelled to sell by the White House. Like rival bidder Oracle, Walmart is out of its lane.
Even by 2020 standards, the TikTok auction is turning up some surprises. Oracle, Microsoft or Walmart don’t have particular experience running consumer-facing social networks. What they do have is size – at $370 billion, Walmart is potentially 15 times bigger than TikTok. The Arkansas-based supermarket giant also has plenty of firepower: Its net debt is only around one year’s worth of EBITDA.
The idea makes sense only in that TikTok is one of a kind, and is only available because ByteDance is a forced seller. As a purely financial investment, it’s a better bet. Yahoo co-founder Jerry Yang turned a $1 billion investment in Chinese e-commerce group Alibaba into a $50 billion goldmine over the course of a decade.
The trouble is that Walmart boss Doug McMillon may have something more strategic in mind. The retailer says TikTok could help it “reach and serve omnichannel customers” through advertising and e-commerce. That is a lofty goal at best, and a meaningless one at worst. TikTok’s growth once detached from its Chinese owner will depend on careful management and social media nous that Walmart, Microsoft and business software firm Oracle don’t obviously have.
In any case, the fusion of old-world businesses with new-world ones also has a poor historical record. Think of AOL and Time Warner’s disastrous merger 20 years ago, or Rupert Murdoch’s News Corp beating out fellow mogul Sumner Redstone’s Viacom for social network MySpace, only to see its $580 million investment get crushed by competition from Facebook.
Walmart is big enough that it can incinerate a few billion dollars without its core business being dented. TikTok’s popularity is undoubtedly dazzling. But the 5% increase in Walmart’s shares on Thursday – equivalent to almost $20 billion – show that a frothy market for tech companies, and a fear of missing out, are order of the day.
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