Shares of Walmart (WMT) had a standout day Monday, gaining about 2.8% as part of that seasonal "Easter trade" that Jim previewed in late March in our Daily Rundown video here.
Shares were mostly flat to lower to at the beginning of Tuesday's session but started to move higher after Bloomberg reported that the Indian e-commerce giant Flipkart, which Walmart owns a majority stake in, is aiming for an IPO in the fourth quarter. The news is consistent with a report we heard back in early December that said Walmart was exploring an IPO for Flipkart in which they owned a roughly 82.3% stake at the time of the report.
According to the Bloomberg report that you can read here, Flipkart's valuation could exceed $35 billion in the public markets. Walmart paid $16 billion in 2018 for a 77% stake in Flipkart, so selling a portion of its stake at a much higher valuation could be a great way for the retailer to unlock billions of dollars in value, explaining why WMT shares traded up on the headlines.
In other news, we came across one research note this morning by Morgan Stanley that highlights the firm's recent survey work on the Walmart+ subscription program. Morgan Stanley periodically surveys households to gauge interest in the product, and this is a helpful tool because Walmart management has not provided any clues into uptake or subscriber count yet. Launching in September 2020, the Walmart+ program is still way too young for management to be providing hard numbers around.
Morgan Stanley said in their note that Walmart+ membership penetration "fell" to 6.4% of U.S. households compared to 7.7% in their last survey, but they added a caveat that the reason for this decline is likely due to sampling error. More broadly, they think total membership has "stagnated" somewhere around the 8 to 10 million U.S. household range with the total TAM [total addressable market] settling in around 20 million.
We are focused on the Walmart+ because our longer-term thesis in this subscription program has been that this could be the retailer's answer to Amazon Prime. Walmart is slowly building out an ecosystem of products and services, and in turn, they are creating a flywheel effect that grows customer loyalty and increases wallet share.
Furthermore, adding an element of a subscription-based recurring revenue business to the company's financials should support a higher valuation. Investors hate uncertainty so much that they are always willing to pay more for predictability, which is why the market tends to apply high multiples on recurring revenue streams.
Although the Morgan Stanley note read slightly negative about the Walmart+, we think the program is still in its infancy and not a direct driver of movements in the stock price yet.
Today's slight gains in WMT put it near $140 per share, meaning the stock is now finally trading a couple of dollars above the $137.66 closing price of the February 18th fourth quarter 2020 earnings selloff. With shares still down about 3% for the year and about 8% off its highs, we still believe this name has more room to run over the long run, especially as investors begin to see Walmart's latest investment cycle for what it means to market share gains and higher levels of profitability in the future.