Walmart Inc. (WMT) has decided to acquire 77 percent stake in India’s largest online seller Flipkart in a transaction valued at $16 billion. The deal, Walmart’s biggest ever, marks a blow against chief competitor Amazon and will further intensify the battle between the two companies in India.
Flipkart competes with e-commerce giant Amazon across a range of categories and controls 34 percent of online sales in India. The latest collaboration will help Flipkart to get expertise and additional capital to compete with Amazon, which is spending heavily to expand its user base in India. According to a research firm Euromonitor, online sales in the country are growing nearly 35 percent a year.
On the other hand, the acquisition of controlling stakes will offer Walmart access to India’s expanding e-commerce market, which some believe will grow to $200 billion within a decade. The U.S retail giant will now be able to tap into the world’s second most-populous country without building stores. However, the business will need a while to become profitable.
The Bentonville, Arkansas-based company didn’t offered a specific timeframe on profitability, though said Flipkart’s losses should decrease in the mid to long term. The transaction will cut its 2018 profit in a range of 25 cents per share to 30 cents per share.
An analyst at Moody’s, Charlie O’Shea stated in a note that this is certainly an investment for the future, as Flipkart is anticipated to add significant losses for at least the next few years.
Walmart shares fell more than 3 percent on Wednesday following the deal. The stock is already down more than 13 percent so far this year.
Separately, S&P cut its outlook for Walmart from “Stable” to “Negative,” referring to rising leverage and risks originating from its investments to grow in the e-commerce space and worldwide as it continues its share repurchase program.