Walmart's deal to buy a controlling stake in India's biggest online seller is meeting skepticism on Wall Street. The world's largest retailer will acquire a 77 percent holding in Flipkart Group for $16 billion, the companies said earlier Wednesday. Flipkart co-founder Binny Bansal and other shareholders will hold the remainder. The tie-up values the Indian e-commerce giant at about $20.8 billion and marks a blow against rival Amazon.com Inc. as the battle for e-commerce supremacy goes global.
The deal -- Walmart's biggest ever -- gives it greater access to India's e-commerce market, which Morgan Stanley has estimated will grow to $200 billion in about a decade. But it will take some time for the business to turn profitable, and analysts on a Wednesday morning call about the deal adopted a cautious tone. S&P Global Ratings changed its outlook on Walmart to negative.
"As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future," Moody's analyst Charlie O'Shea wrote in a note.
Walmart shares dropped as much as 4.2 percent to $82.12 as of 10:28 a.m. in New York -- the lowest intraday price since October. The company's stock was already down 13 percent this year through Tuesday's close.
The retail giant declined to give a specific timetable on profitability, saying only that Flipkart's losses should decline "in the mid to long term." The deal will shave 25 cents to 30 cents per share from this year's earnings, with that impact doubling the following year.
"It's typical of a business like this that, as you scale up, you will have losses. We expect those losses to continue for a little while," Walmart's Chief Financial Officer Brett Biggs said in a phone interview.
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