Editor’s note: This article was corrected to change the figures from the eMarketer survey from millions to billions.
Wal-Mart Stores, Inc. (NYSE:WMT) is in the news today with rumors of a possible Jet.com buyout, which would put a true online retailer under its belt. It’s all just speculation right now, of course, but does it reflect the retail giant’s state of mind to WMT stock holders?
Specifically, hints that Walmart would pony up roughly $3 billion for Jet.com means the big box giant is apparently ready to stand toe-to-toe with retail rival Amazon.com, Inc. (NASDAQ:AMZN) in the e-commerce space.
There have long been overtures about Walmart moving its business online and the implications for WMT stock. In fact, an eMarketer analysis a few months ago put Wal-Mart Stores Inc. as the No. 2 online merchant in the U.S. — behind Amazon.com, of course.
However, the gap is pretty substantial. According to the study, Amazon commands over $79 billion or 74% of the total U.S. ecommerce market, while WMT stock does just $13 billion in sales, or slightly under 3%.
The Jet buyout plan is a clear sign that current efforts such as ShippingPass, it’s rival to Amazon Prime, aren’t enough.
What’s Next for WMT Stock?
Admitting you’ve been beat on e-commerce isn’t easy for Walmart — particularly at a time when revenue is finally edging higher again and WMT stock is beating the market in 2016. But a realization that the company can’t do it alone isn’t necessarily a bad thing.
Plenty of other companies have expanded via acquisition to complement their core business — think eBay Inc (NASDAQ:EBAY), which acquired PayPal for $1.5 billion in a very wise move that not only helped EBAY stock but ultimately resulted in the spinoff of Paypal Holdings Inc (NASDAQ:PYPL) last year as a $40 billion-plus corporation of its own. Or even in the case of AMZN, think its acquisition of other e-commerce names including Diapers.com, or shoe seller Zappos.
Also, it’s not like Walmart can’t afford a Jet buyout. As of the latest filing, there is $7.5 billion in cash on the books — making a deal easily digestible even without debt or WMT stock to sweeten the pot.
Any deal like this, however, is a risk. Brand loyalty tends to matter far less than price these days, so WMT stock isn’t going to see some huge jump in margins or anything, since Jet.com is always selling things at a discount — the way Amazon.com, Inc. has trained merchants of all types.
Furthermore, Walmart doesn’t exactly have a reputation that would sit well with some consumers currently using Jet.com.
But at the end of the day, WMT has to do something to stop the rise of Amazon and the decline of its existing brick-and-mortar model. In the current environment, there are few better options than a Jet buyout … even if it’s essentially a $3 billion gamble.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at [email protected] or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.