Walmart stock is rising following the news that the retail
giant is pushing into fintech with its latest partnership, the latest in a
string of moves diversifying away from its core business.
Walmart (ticker: WMT) announced on Monday that it would
create a fintech start-up with Ribbit Capital, a backer of Robinhood and Credit
Karma. The new company, which will be majority owned by Walmart, aims to
“deliver tech-driven financial experiences tailored to Walmart's customers and
associates.”
Walmart was up 1.5%, to $149.44, in trading Tuesday.
While fintech may not seem to fit squarely in Walmart’s
wheelhouse, it’s actually not much of a surprise. Walmart already offers a
number of financial services, including money orders, check cashing, and credit
cards. Through its ownership in India’s Flipkart, Walmart has exposure to
digital payments as well.
Moreover, the company has been quick to sign a number of new
partnerships in the past year with players like Shopify (SHOP) and ThredUp, and
expand into non-retail areas like human and animal health and advertising.
The company’s plan to be a partial owner of social media app
TikTok speaks to its desire to attract newer, younger customers, a goal that
could also be furthered by a fintech investment.
Bank of America’s Robert Ohmes praised the deal, writing
that “financial services represent yet another monetization opportunity that
could be meaningful in supporting long-term profitability for Walmart as third
parties increasingly pay for access to its growing online traffic.”
“Importantly,” he wrote, “we see Walmart’s growing digital
advertising business among its most strongly positioned businesses to benefit
from continued expansion in its digital ecosystem, in addition to Walmart
Payments.” He has a Buy rating and $175 price target on the stock.
By contrast, Quo Vadis Capital President John Zolidis says
that the move feeds his “unfavorable view” of the stock, as it reinforces his
“sense that Walmart is deviating from its capital allocation discipline and
core competency.”
By some accounts, nearly a quarter of Walmart’s customers
don’t even have a bank account, while half don’t have credit access, making
them unlikely to take advantage of cutting edge financial products, he wrote.
Yet with this latest move, Walmart could be again looking to
expand beyond its core base of customers. It does fit with its recent strategy
of looking to diversify its revenue stream, specifically with higher-growth
businesses, especially as it faces difficult comparisons this year from its
pandemic bump.
Ultimately the question may be whether or not these new
ventures become an asset or a distraction, and investors’ patience in seeing
results.
Click here for the
original article.