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Walmart: Streaming Is A Smart Move

Aug. 07, 2018 3:40 PM ETWalmart Inc. (WMT)22 Comments
Steven Mallas profile picture
Steven Mallas


  • Walmart is reportedly considering investing in a streaming service.
  • Content is very valuable, especially the development of blockbuster IP.
  • Investing cash flow in streaming is a good way of expanding the company's mature revenue base.
  • Walmart could build up a studio that might eventually be strategically sold or structured as a spinoff. The company could acquire a studio as well.
  • Filmed-entertainment content offers many cross-promotional opportunities in the brick and mortar footprint.

Walmart (NYSE:WMT) reportedly wants in on the streaming game. This is exactly what Walmart - the owner of digital-movie site Vudu, it should be noted - should be doing to compete in the new era of online, mall-destroying competition. The only problem is the company should have made this move a long time ago.

There are several reasons why the company would benefit from a streaming service.

First, Walmart is a large, mature company with significant cash flows. It is looked upon as a total-return stock. When a business gets to this point, it becomes difficult to find new revenue streams; it also becomes difficult to adjust to various competitive landscapes that are driven by technological startups. Acquisitions are needed, but they don't always do the trick. According to the annual report (.pdf file), in fiscal 2018 the company captured $500 billion in sales. Over $11 billion of that top-line activity was courtesy of electronic commerce. $28 billion made its way to operating cash flow. Management used $14 billion for buybacks and quarterly payments to shareholders. Capital investment was $10 billion.

I see opportunity in these numbers. To compete in the streaming industry, any viable player in the game must spend a lot of money on content, whether it be licensing or creating originals. In Walmart's case, I am going to assume it will be doing both. Billions will need to be invested. The specific opportunity I see is reducing the amount returned to shareholders and allocating it toward content investment.

This might seem inadvisable for a company in the Dow Jones Industrial Average, but in my opinion, it would not be. Most companies in the index are expected to be consistent cash-flow leaders that commit to an increasing-dividend strategy backed by safe, conservative growth initiatives. Taking big risks is not necessarily in the index's

This article was written by

Steven Mallas profile picture
I have previously written articles for The Motley Fool, TheStreet, and AOLs BloggingStocks.I also write fiction. I have stories published at Nikki Finke's Hollywood Dementia site, including "The Streaming Service," "The Screenwriterman," "Mygalomorph" and "Spielberg's Last Film."Here is a link to my YA book, "Abner Wilcox Thornberry and The Witch of Wall Street."This is a collection of short horror stories: Tales From Salem, Mass.

Analyst’s Disclosure: I am/we are long DIS, LGF.A. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

Did you see that earnings report today?!? Looks like perhaps WMT does't need streaming.
Steven Mallas profile picture
It was a great report....but now imagine the company playing the Hollywood game to go even further. Take that cash flow, play offense against the tech companies.....
Scotts Miracle-Gro Sucks profile picture
I watch Vudu (owned by walmart) all the time, lots of great free movies with just a few adds. Question really is, why isn't walmart in the live streaming business at this point? The choices for live tv are going to eventually widdle down to youtube tv, sling, directtv now, and probably whoever is next. I personally love youtube tv as it has everything my dish subscription ever had, is available on all my tv's via roku's, and no boxes or bullcrap to rent. I would switch to walmart tv if it had the same stuff for even less.
Steven Mallas profile picture
I don't envision live-TV so much as filmed entertainment. I think original content can do a lot to differentiate a retailer from the next retailer. The great thing is, even if everyone produces content, there will be some opportunity to produce better content. And besides, retailers need some new killer-app as opposed to the "we excel at customer service" bromide. Every retailer thinks they are selling customer service. They aren't; they need to differentiate themselves, truly, and then sell that...storytelling can help...
Long $WMT and have myself been a Wall-Martian at times.
Steven Mallas profile picture
Thanks for the comment. Long term you'll probably do well. I assume you mean you've been employed by the company? If so, you probably have a good perspective on how Walmart can prepare for the future.....
Imagine a pay tv service that included rapid free shipping from items seen on commercials or broadcasts, you simply click the ad, add a determined minimum to cart and a wally world "ice cream truck" is at your house within the hour. More online purchases, monthly subscriptions, ADVERTISING. The alternative revenue streams from just a break even good quality content media company could be massive for WMT. I like to fantasize about the bluechips I own in my young DGI portfolio as being growth companies. In 30 years I hope I can tell some 30 something, I invested in WMT @83 and it makes me look like a genius.
Steven Mallas profile picture
Great comment, jarsnice….the picture you paint is indeed something that could happen somedat. And yes, why can't blue-chips overperform on the growth side of total return...filmed entertainment can help.
jsantmyer profile picture
What does Walmart know about the streaming business? sounds to me like they want to become a mini-conglomerate. when that happens they will be taking their eye off the ball that got them here.

I disagree with the strategy
Steven Mallas profile picture
I agree, there is risk to the idea. But I'm wondering if the storytelling industry is becoming too tough to ignore for just about all companies. Even small businesses, like pizza shops/etc., should maybe experiment with short films and comic books, things like that. Great for marketing at that scale.....
They could do a reality TV version of Superstore!
Steven Mallas profile picture
Not a bad idea. I could see an actual show about Walmart produced by Walmart. If the company were brave, it would show even some of the negative stuff.
Walmart became the best retailer on the planet by relentless focus on improving the efficiency of how they do retail. If they get into streaming, to me that is a sign that they are losing focus on what they do best, and certainly not a buy signal IMO. WMT needs to and can to beat AMZN by doing what they do best, by being a great retailer, not by trying to become AMZN.
Steven Mallas profile picture
It's a good point, I don't deny. But I don't think the content game is overly complex. Creativity doesn't need to be expensive to be effective, and I think Walmart would at least try to be very efficient about it.....
Jamjack profile picture
WMT is doing well in the "Amazon is king" world. I agree they have the economic power to challenge too.
Steven Mallas profile picture
Thanks for the comment, Jamjack. I'm glad you agree. If you've got the cash flow and you're not sure what to do next, original content/streaming is a good place to start given all the technological advances in that area that make content easier to make than ever before....
I agree with your assessment. A streaming service would be an exciting and viable addition to a company that is somewhat mundane. People use Walmart. Their parking lots are always filled. Point of Sale potential would indeed be huge for such a service.
Steven Mallas profile picture
Thanks, furiousp…..glad you brought up the point-of-sale...I really see that. How long before Whole Foods starts to synergize with its parent in that manner? Walmart management needs to get there first.....
Richard Smoker profile picture
Don’t want to watch on demand shows, or season 3 of friends. I want local channels and live TV. Just got a free Apple TV by signing up for Directv now. So far so good
gametv profile picture
Walmart should develop a service that is targeted to middle america, and produced by middle america, not hollywood. Maybe put production center in Nashville, TN. Good family values, probably a dose of christian content, etc. Quite frankly, I would be marketing it through churches across the country as the alternative to Hollywood.

There is a huge segment of the American population that is tired of Hollywood, whether that be for political reasons (conservative), religious reasons (Christian) or simply because Hollywood tends to be act like it is better than the rest of the country. Netflix produces stuff like Orange is the New Black that is "edgy". Well, middle america doesnt want that and it is niche.
Steven Mallas profile picture
Bob, AppleTV is indeed a great product, sounds like you got a good deal. I too am a bit saturated by all the content out there, but I think there are millions out there who want more, thus making this an opportunity, in my opinion....
Steven Mallas profile picture
Gametv, yes, that market is significant and I assume growing. I would say though that all types of content should be on the table, just to ensure a lower risk. Great observation, though, and from what I have read, some speculate Walmart may lean that way in terms of content development....we shall see, as they say......thanks for the read.....
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