Market Overview

Morgan Stanley: Why The Reported Amazon, Walmart Talks With India's Flipkart Make Sense

Share:
Morgan Stanley: Why The Reported Amazon, Walmart Talks With India's Flipkart Make Sense
Related AMZN
The Market In 5 Minutes: WWE's Big Deal, Netflix And The Obamas, Sony-EMI And More
How The GDPR's Data Portability Rules Could Affect Client Churn
Techpocalypse 2018: Expect Tech Company Valuations To Eventually Mean Revert (Seeking Alpha)
Related WMT
Target Shares Slide On Q1 Earnings Miss; Retailer Says Traffic Accelerating In Q2
China, U.S. Back Away From Trade War, Helping Market Sentiment
Lowe's: Building A Solid Foundation (Seeking Alpha)

Two U.S. retail behemoths, namely Walmart Inc (NYSE: WMT) and Amazon.com, Inc. (NASDAQ: AMZN), have launched a bidding war for a controlling stake in India's hugely successful e-commerce company Flipkart, according to Bloomberg.

The two companies have valued Flipkart at $20 billion, and Walmart is ahead in the race, the report said. 

The Analyst

Morgan Stanley analyst Brian Nowak maintained an Overweight rating and $1,500 price target on Amazon. For Walmart, Morgan Stanley maintained an Equal-weight rating with a $99 price target.

The Thesis

India presents the largest greenfield opportunity — with an estimated $200 billion online retail total addressable market in 2027 — as online penetration increases from less than 3 percent of the retail spend in 2017 to 12 percent in the next 10 years, Nowak said in a Thursday morning note. (See the analyst's track record here.)

The analyst estimates that India accounts for a material portion of the "other" international retail business for Amazon, which is likely to drive 30 percent of total revenue growth over the next three years.

Flipkart has a 57-percent share of the budding $15-billion Indian e-commerce market versus Amazon's 30-percent share, Nowak said. 

Amazon's interest in Flipkart is due to the logic that the potential buy would eliminate competition or engender a more rational environment, he said. 

"It could also enable Amazon to scale its budding logistics network faster and more profitably."

Walmart has been vociferous about its intent to gain a strong foothold in the Indian e-commerce market due to the growth opportunity, according to Morgan Stanley. The discount retailer may be keen on building an e-commerce presence in India, according to the firm. 

Walmart is well-penetrated in China, with over 400 stores and a 12-percent investment in Chinese e-commerce retailer JD.Com Inc(ADR) (NASDAQ: JD), Nowak said. 

Walmart has been earmarking India as a focus area over the last one to two years, he said. 

A partnership with Flipkart could mean Walmart is going on the offense in establishing itself in India, the analyst said. 

The Price Action

Amazon shares have added over 60 percent over the past year, while Walmart is up a more modest 18 percent.

Related Links:

DA Davidson Identifies Banks, REITS That Could Benefit From Amazon's HQ2

Analyst: Why Humana And Walmart Could Make Sense Together

Latest Ratings for AMZN

DateFirmActionFromTo
May 2018Telsey Advisory GroupInitiates Coverage OnOutperform
Apr 2018WedbushMaintainsOutperformOutperform
Apr 2018BarclaysMaintainsOverweightOverweight

View More Analyst Ratings for AMZN
View the Latest Analyst Ratings

Posted-In: BloombergAnalyst Color News Reiteration M&A Top Stories Analyst Ratings Media Best of Benzinga

 

Related Articles (AMZN + JD)

View Comments and Join the Discussion!