digital commerce

‘It makes zero sense’: Why American investors aren’t sold on Walmart’s acquisition of Flipkart

The retail giant’s stock fell as much as 4% on the New York Stock Exchange the day the deal was announced.

Investors in the United States aren’t exactly kicked about the world’s biggest e-commerce deal.

On May 9, Walmart said it will spend $16 billion to buy a 77% stake in Flipkart, India’s largest homegrown e-commerce firm. With this deal, the US retailer has finally got a way into India’s retail market after playing at the fringes for over a decade.

However, Walmart’s investors in the US are hardly the most excited bunch. On the day of the announcement, Walmart’s stock fell as much as 4% on the New York Stock Exchange. The slump was driven by “skepticism about the cost of the deal” as well as the cynicism around whether the deal will really help Walmart gain ground against arch rival Amazon in India, The Wall Street Journal reported.

For Flipkart, Walmart has offered to pay at least five times more than its last biggest acquisition.

Data: S&P Global Market Intelligence
Data: S&P Global Market Intelligence

Here is a quick roundup of what some experts who track Walmart in the US have been saying.

Ben Thompson, a business, technology, and media analyst:

“I think investors got this deal exactly right: it makes zero sense. I read Walmart’s presentation and listened to the entirety of its call with investors and I remain as puzzled as I was when I heard the deal.

...I struggle to see what exactly the company can add: there was basically zero discussion of how Walmart will make it more likely Flipkart will succeed in its battle with Amazon. Walmart’s executives tried to argue that the benefit would go the other way – Walmart would learn from Flipkart – but wasn’t that the point of acquiring

Frankly, this deal reeks of empire building: Walmart is buying its share of Flipkart because it feels entitled to retail growth globally, but the reality is that Walmart’s investors would be far better served by Walmart investing the cash in its fight against Amazon or, if it feels it is already spending enough, returning the cash to shareholders who can decide on their own how to invest in the market (likely by buying Amazon shares, natch).

…Indeed, as far as I can tell, the only potential benefit to Walmart and its investors is that Walmart’s backing potentially makes Amazon’s fight for India more expensive. Even that, though, is likely to prove to Amazon’s benefit in the long run: Jeff Bezos’ company will almost certainly have a longer leash with investors than will Walmart; if the company wants to truly concern itself with Amazon the money would have been far better spent at home.

John Brick, Morningstar equity analyst:

The stock reaction yesterday was due in our view to management’s commentary around the expected 5%-11% decline to earnings over the next two years as a result of Flipkart failing to turn a profit and investments into the business.

…Flipkart is still maintaining its brand identity. Walmart will just supply better logistics, scale, and capital to support their venture. For that reason, we don’t see a change to how Indian customers will perceive the company.

Despite its tenure abroad, international stores (24%) may never reach the level of profitability seen in the US, as it lacks similar scale benefits and sells through a multitude of banners. (Walmart was squeezed out of Germany, Brazil, Russia, and South Korea.)

Amazon has a dominant position selling to millennials online, and it may be difficult for Walmart to unseat its rival.

Rupesh Parikh, an analyst at Oppenheimer:

This deal adds new risk at a time when investors have been looking at Walmart to streamline their business. This has the potential to really derail some of the progress they have made…Walmart is walking a fine line between investment and profitability right now. Growing an e-commerce company is really, really expensive, and there’s no guarantee that Walmart, or anyone, can do that very well.

Dan Binder, managing director at Jefferies:

Longer-term investors see value and short-term investors see dilution and near-term share weakness. Admittedly, even long-term investors may have to be very long-term in their view before this business breaks even, but perhaps less so, before value is realised directly in the Walmart stock. This could be achieved through an eventual Initial Public Offering of Flipkart, which would simultaneously create currency for Flipkart management to stay incentivised and provide Walmart significant returns on its initial investment

…To be clear, Walmart management has only said it supports Flipkart’s ambition to transition into a publicly-listed, majority-owned subsidiary in the future. How far in the future is unclear, but given clear advantages to doing this, we would be surprised if it was more than two to three years.

Walmart’s shares have been downgraded by several rating agencies over the last two days. Standard and Poor’s lowered Walmart’s outlook from stable to negative, owing to the rising leverage and risks due to the company spending to expand online and globally. The New York-based investment bank Oppenheimer & Co also slashed its rating from outperform to perform.

This article first appeared on Quartz.

Support our journalism by subscribing to Scroll+ here. We welcome your comments at
Sponsored Content BY 

Tracing the formation of Al Qaeda and its path to 9/11

A new show looks at some of the crucial moments leading up to the attack.

“The end of the world war had bought America victory but not security” - this quote from Lawrence Wright’s Pulitzer-Prize winning book, ‘The Looming Tower’, gives a sense of the growing threat to America from Al Qaeda and the series of events that led to 9/11. Based on extensive interviews, including with Bin Laden’s best friend in college and the former White House counterterrorism chief, ‘The Looming Tower’ provides an intimate perspective of the 9/11 attack.

Lawrence Wright chronicles the formative years of Al Qaeda, giving an insight in to Bin Laden’s war against America. The book covers in detail, the radicalisation of Osama Bin Laden and his association with Ayman Al Zawahri, an Egyptian doctor who preached that only violence could change history. In an interview with Amazon, Wright shared, “I talked to 600-something people, but many of those people I talked to again and again for a period of five years, some of them dozens of times.” Wright’s book was selected by TIME as one of the all-time 100 best nonfiction books for its “thoroughly researched and incisively written” account of the road to 9/11 and is considered an essential read for understanding Islam’s war on the West as it developed in the Middle East.

‘The Looming Tower’ also dwells on the response of key US officials to the rising Al Qaeda threat, particularly exploring the turf wars between the FBI and the CIA. This has now been dramatized in a 10-part mini-series of the same name. Adapted by Dan Futterman (of Foxcatcher fame), the series mainly focuses on the hostilities between the FBI and the CIA. Some major characters are based on real people - such as John O’ Neill (FBI’s foul-mouthed counterterrorism chief played by Jeff Daniels) and Ali Soufan (O’ Neill’s Arabic-speaking mentee who successfully interrogated captured Islamic terrorists after 9/11, played by Tahar Rahim). Some are composite characters, such as Martin Schmidt (O’Neill’s CIA counterpart, played by Peter Sarsgaard).

The series, most crucially, captures just how close US intelligence agencies had come to foiling Al Qaeda’s plans, just to come up short due to internal turf wars. It follows the FBI and the CIA as they independently follow intelligence leads in the crises leading up to 9/11 – the US Embassy bombings in East Africa and the attack on US warship USS Cole in Yemen – but fail to update each other. The most glaring example is of how the CIA withheld critical information – Al Qaeda operatives being hunted by the FBI had entered the United States - under the misguided notion that the CIA was the only government agency authorised to deal with terrorism threats.

The depth of information in the book has translated into a realistic recreation of the pre-9/11 years on screen. The drama is even interspersed with actual footage from the 9/11 conspiracy, attack and the 2004 Commission Hearing, linking together the myriad developments leading up to 9/11 with chilling hindsight. Watch the trailer of this gripping show below.


The Looming Tower is available for streaming on Amazon Prime Video, along with a host of Amazon originals and popular movies and TV shows. To enjoy unlimited ad free streaming anytime, anywhere, subscribe to Amazon Prime Video.

This article was produced by the Scroll marketing team on behalf of Amazon Prime Video and not by the Scroll editorial team.