REUTERS: Wall Street was swift to see the rationale behind Walmart Inc jumping into the fray to buy TikTok: access to millions of young, digitally savvy users who could help the 60-year-old company boost its online sales.
The retailer revealed plans to join Microsoft Corp in a bid for the social media firm's U.S. assets on Thursday, hours after the video company's chief executive said he would step down.
Analysts said Walmart picking up a stake in the short-form video app, which is owned by China's ByteDance and claims to have about 100 million active monthly users in the United States, could be a game changer for the world's largest retailer.
"Connecting with a younger audience is vital to Walmart's long-term outlook, especially as more digitally native generations move into their prime consumption years," UBS analyst Michael Lasser said.
"The lines are blurring between traditional shopping, digital shopping and social media. Walmart needs more exposure to this trend."
Companies have been scrambling to advertise and sell on apps like TikTok and Facebook's Instagram, where shopping has surged, as people spend hours everyday scrolling through the latest viral videos from their favorite influencers.
About 23per cent of U.S. users reported making a purchase on Instagram earlier this year, compared to just 15per cent in late-2019, according to a survey conducted by RBC Capital Markets.
A combination of Walmart's e-commerce operations and customer purchase data with Microsoft's Azure cloud platform and TikTok's mostly millennial and Gen Z monthly users could create a digital behemoth even more dominant than Amazon.com Inc or Facebook, Jefferies analyst Christopher Mandeville said.
However, any potential deal will come under intense regulatory scrutiny, with TikTok under fire from the White House as a potential national security risk.
Oracle Corp has also bid for TikTok's U.S. operations.
Twitter livened up with memes after Walmart announced it had teamed up with Microsoft to buy a social media app less than three-years old.
"Walmart and Microsoft buying Tiktok easily the most 'hello fellow kids' move of all time," Twitter user @ericzawo said.
(Reporting by Uday Sampath and Aniruddha Ghosh in Bengaluru; Editing by Sweta Singh and Sriraj Kalluvila)