Wal-Mart: Jet Propelled?

08/30/2016 8:00 am EST

Focus: STOCKS

Stephen Mauzy

Income-Investing Specialist, Wyatt Investment Research

It has been an especially busy couple of weeks for one of our newer recommendations — a retailing giant — as it demonstrates it is serious about upping its online presence, notes Steven Mauzy, editor of High Yield Wealth.

Wal-Mart Stores (WMT) announced that it had agreed to pay $3.3 billion for Jet.com, a two-year-old e-commerce start-up. Wal-Mart is interested in Jet.com for two reasons.

First, there’s Jet.com’s unique discount technology, which allows customers to accumulate greater discounts as they purchase more items.

More discounts are in store if customers opt out of free returns and pay with a debit card, as opposed to the more expensive (to the retailer) credit card.

Jet.com’s CEO Marc Lore is the second reason Wal-Mart wanted Jet.com. Lore is now in charge of running both Jet.com and Wal-Mart's online business as its president and CEO of e-commerce.

To be sure, Wal-Mart is forking over a lot money for Jet.com. The price tag – $3.3 billion – is the highest ever for an e-commerce start-up. We think that it’s money well invested. 

Wal-Mart has already spent billions of dollars to build out its own e-commerce presence. Revenue growth has slowed a bit in recent years (though sales were up 11.6% in the latest quarter).

Growth at Jet.com, in contrast, is on a moonshot trajectory. Jet.com achieved a $1-billion gross-merchandise run rate in little more than a year.

It’s adding 400,000 shoppers each month. Wal-Mart is now much better positioned to compete with online retailing Goliath Amazon.com.

Wal-Mart also reported quarterly financial results that were better than most analysts and investors had expected.

Wal-Mart shares hit a 52-week high this month after announcing the Jet.com acquisition and strong second-quarter financial results. Year to date, its shares are up 20%.

We see more share-price appreciation over the next 12 months as the company begins to reap the benefits of its Jet.com acquisition. 

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By Steven Mauzy, Editor of High Yield Wealth

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