
Confirmed: Walmart buys Jet.com for $3B in cash - brandonlipman
https://techcrunch.com/2016/08/08/confirmed-walmart-buys-jet-com-for-3b-in-cash/
======
KenCochrane
Jet.com ran a contest where they gave 100,000 shares as the top prize for the
most signup referrals. This Guy is probably one happy guy right now. He spent
$18k and the value of those stocks are probably worth in the millions.

[http://www.businessinsider.com/jet-insiders-referral-
program...](http://www.businessinsider.com/jet-insiders-referral-program-
winner-2015-2)

~~~
elbasti
Pretty cool. While this is almost certainly in violation of general
solicitation SEC regulations, I doubt there would be any action taken by the
regulator.

The surprising part is that Jet.com's legal department let this fly.

~~~
vessenes
Why would this violate? They are giving a reward, no value implied or stated.

~~~
elbasti
In general, the unregistered "general solicitation" for the purchase of
securities is prohibited. You can't go on TV and ask people to buy your stock
in exchange for money unless you have registered to do so--an IPO or
subsequent S1.

Stock is certainly a security. Stock options are just call options of a
security, and also a security. Obviously there is some (future, conditional)
value implied since it's a reward.

It doesn't really matter whether you are trading stock for dollars, or work,
or fb likes, or whatever--it's still a general solicitation because they are
being traded for _something_.

Caveat: I'm not a lawyer but I have been involved in startups in the space for
many years.

~~~
nv-vn
Well he was just referring people to sign up for the website. The money was
money he spent advertising the website(?), so the money only went to getting
new members. The stocks were given as the reward for the most sign ups, not in
exchange for money.

~~~
elbasti
The point is that the stock was exchanged for something (referrals, marketing,
etc), and that the contest was _announced_ (ie, general solicitation). That no
cash traded hands doesn't matter.

There is precedent of an almost identical enforcement action by the SEC, but
my google fu is failing me.

~~~
throwawaylalala
Would be Jet.com's issue, not the guy.

~~~
elbasti
That is correct.

------
rogerdpack
I figured out what is going on here. Walmart thinks to themselves "we want to
be like amazon, we want to be huge online" and then jet comes along and is
something of an almost competitor to amazon, so corporate thinks "oh we should
snap this up" but...my gut reaction here is this is going to be a terrible
deal for walmart, what are they going to do, keep dumping $500M/yr for it at a
loss or what? Pretty desperate, but whatever.. :)

~~~
camelNotation
Walmart has something Jet.com needs: one of the world's most advanced product
delivery systems. Every Wal-Mart store is a distribution center waiting to
happen. They are enormous and they are everywhere.

Jet.com has something Wal-Mart can use to rocket its online presence forward:
advanced online infrastructure, patents, a wealth of technology experts, and
users.

Together, Wal-Mart can beat Amazon at its own game by doing what Amazon is
already doing (building more, smaller DCs everywhere) using what they already
have (massive retail locations everywhere).

~~~
AznHisoka
jet.com has no:

\- reviews of products

\- no customer q&a section

\- no 3rd party seller ratings

These are rather basic features in an ecommerce site. So no, I don't think the
guys from jet.com are experts at all.

~~~
allendoerfer
Worse than having no content is publicly showing an empty user-generated
content section. Marketing-wise it also seems like a dumb idea to try to beat
amazon.com on longtail.

------
a_small_island
What's the likely scenarios for an employee whose been there for 2 years, an
employee whose been there for 1 year, and an employee whose been there for 6
months? If we assume 1 year cliff on options.

~~~
tyre
Great question. The answer is the same for all of them: roughly 0.

Jet's last valuation was $1.6bn and it was, and continues to, burn cash like
crazy. Investors aren't dumb, they see that.

So they add a terms to their investment whereby they guarantee a return on
their investment. For a company that needs hundreds of millions of dollars and
is trying to beat Amazon? Let's say 3x.

That means that if I put in $100m dollars at a $1.6b valuation, then you sell
at a $4.8bn or above, then everything is fine because I got my 3x. If you sell
for less, as they did, then I get my $300m first, before anyone down the line.
That's called liquidation preference.

Jet was burning capital so they likely had to make a lot of concessions in
fundraising. Given that their estimated total funding is around $800m, there
isn't much else to go around.

You'll notice that some employees and the founders got around $300m worth of
Walmart stock. Why would they need that if the company just sold for $3bn?
Because the sale likely netted them next to nothing.

~~~
ryandrake
If no employees get anything, why wouldn't they organize and threaten to quit
together (leaving Walmart buying the name, a founder or two and some
technology with nobody to run it) to try to stop the deal? Isn't the whole
idea of accepting 1/2 salary at a start-up because of your glorious equity?
Whenever I hear about these "deals" where employees end up with nothing or
close to nothing, I wonder what they are thinking. Why accept that?

EDIT: I suppose if the alternative is "run out of money next month and
everyone's fired anyway", then worthless equity and a possible job maintaining
that code at Walmart doesn't sound so bad.

~~~
csallen
I've met plenty of startup employees who've spent years educating themselves
about programming and <10 minutes reading about equity, stock options, etc.

------
tedmiston
I really hope Walmart doesn't scrap the Jet Anywhere cash back program [0].

It seems not well known and somewhat controversial, but offers generous rates
higher than everywhere else. For example, 4.8% from Expedia, 5.6% from Orbitz.
Unlike every other cash back program they do not cap the amount for flights.

JetCash is effectively real cash because many items are available cheaper than
even from Walmart, Amazon, or Costco. Presumably Jet was taking a loss on
those transactions in the short term. It really has been my favorite cash back
program ever.

[0]: [https://jet.com/anywhere](https://jet.com/anywhere)

~~~
Analemma_
If they were taking a loss on those items, isn't it practically a guarantee
that they were doing that with VC money in order to grow their customer base
either to build a sustainable business later or make them a more attractive
acquisition target? Either way, I wouldn't expect it to continue. Not even
after a normal acquisition, and certainly not from WalMart. WalMart
(in)famously pinches every penny; they don't sustain money-losers.

~~~
tedmiston
It's hard to tell because their pricing strategy is so complicated with the
dynamic discounts based on quantity, what else is in your cart, paying by
debit card vs credit card, etc.

The items that were cheaper than Costco weren't _way_ cheaper, maybe 5–10%
less, so I considered that they may have some kind of higher level membership
that I don't know about.

------
ffggvv
It's funny how everyone was saying that Walmart would never pay $3B
[https://news.ycombinator.com/item?id=12218654](https://news.ycombinator.com/item?id=12218654)

~~~
doppp
It ain't HN without some good ol' cynicism.

~~~
Systemic33
It's what makes HN so great.

Even the original Dropbox "Show HN" pitch was agressively cynical about it; "I
can do the same thing with a linux box and some scripts...", etc.

~~~
toxican
I'll never understand remarks like that. The people who can put together
something with similar functionality to Dropbox are by far in the minority.
It's like having access to tons of scrap and be able to weld and dismissing
metal bed frames because "I can do the same thing with some welding and
scraps".

Also the claim that it would eliminate my need for a USB drive was 100% on
point.

~~~
ido
"No wireless. Less space than a Nomad. Lame."[0]

[0] [https://slashdot.org/story/01/10/23/1816257/apple-
releases-i...](https://slashdot.org/story/01/10/23/1816257/apple-releases-
ipod)

~~~
untog
Everyone always digs that out, but the first iPod _was_ kind of lame. I don't
think it's unfair for someone to have pointed that out at the time. Especially
when it's a hardware product - sure, the line is going to get better but
you're not going to get a free upgrade to it.

~~~
mturmon
"Not unfair to point out" \-- true.

But, the linked comment does _miss the point_. Specifically, it is doing a
hardware spec comparison and not thinking about what it means when a large
player is entering the market with a more-usable device.

And the linked comment (which is indeed an old chestnut) is typical of the
spec-by-spec comparisons you still see in the tech press, and here on HN. It's
a small reminder to look at the bigger picture.

------
SmellTheGlove
Good for them. I talked to a couple of folks there regarding potential roles
that they'd had in the HN hiring thread. We never went anywhere on that front,
but everyone that I interacted with was a total class act. I hope this works
out well for the existing employees.

------
rdlecler1
I get why Walmart would buy them, but it seems to me they could have waited
6-12 months and bought the company for $300m. There's just no way they were
showing growth. The only thing that makes sense is that Jet would have been
damaged goods in 12 months and this was the only option for Walmart to build a
millennial friendly competitor to Amazon.

~~~
mikhailt
Why couldn't they show growth?

Amazon is getting worse for non-prime users. They've increased their free
shipping limit, longer shipments, and kept pushing their deals onto Prime
users only.

I've bought more from Jet.com this year than Amazon in the last two years and
Jet was faster with its free 2 day shipping than Amazon's free shipping.

~~~
steven777400
There could be an opportunity for a competitor depending on how some Amazon
issue play out over the next year or so. A lot of commentors are focused on
the tech (which makes sense, being HN and all), but Amazon has some issues
with counterfeit products, unequal product commingling, and unreliable third-
party sellers.

Right now those issues are mostly side-line grumpling, but I could imagine a
few big incidents could possibly blow up into a substantial reputation issue.
The unknown, of course, is can/will Walmart do any better.

------
wheaties
I have to wonder if the employee stock options were worth anything? Most
telling is that Walmart decided to throw ~$300M at the founders "and others"
to retain them. Does that mean, in this case, that the founding team is the
only one who walks away with a payday?

And to be clear, this isn't a cynical musing. I'm genuinely curious to see how
this worked out for them.

~~~
tommynicholas
There are always retention bonuses for the founders. What scenario would the
options not be worth anything? It's a cash acquisition that is 2x larger than
the post of their last round of funding which was fairly recent.

~~~
asmithmd1
The common stock might be worthless if the last money in had a 2x or greater
liquidation preference.

[https://en.wikipedia.org/wiki/Liquidation_preference](https://en.wikipedia.org/wiki/Liquidation_preference)

~~~
tommynicholas
It would have to be much more than 2x - 2x would still have no impact because
the acquisition was 2x the price of the last round.

~~~
asmithmd1
You are right.

I took a quick look at the cap table on CrunchBase and there is lots of smart
money in it. It is definitely a win for the investors but how much of a win
for common share holders is up to how hard the CEO fights for them.

~~~
morgante
I think everyone will be pretty happy. This isn't Marc's first company (he
sold Quidsi to Amazon for $500M) and everyone I know was happy with that deal.

------
dpeterson
Walmart easily owes over 3 billion in taxes every year. There is a tiny almost
non existent chance they will get a return as profit. However there is a
99.999% chance they get jet.com for free when they write it off as a complete
loss in 2 years. If nothing else they get a valuable 3 letter domain name for
nothing.

~~~
bjacokes
You're misunderstanding how taxes are calculated. If they could deduct the
writeoff, they'd make back their marginal tax rate times the purchase price,
so they'd still lose around $2B. (Similarly, when people deduct their mortgage
interest, they don't get the mortgage "for free".)

------
WhitneyLand
Is anyone here using Jet on a regular basis? I tried it once a few months back
and dismissed it as nothing innovative enough to be a sustainable Amazon
competitor.

I must have been very wrong. I don't see how Jet justifies 3B from Walmart.

I will credit them on one point - They do seem have great employee sat that is
a result of investing lots of time and energy to create a healthy environment.

~~~
rb808
I use Jet on a regular basis. I try to avoid Amazon wherever possible, they're
good but they have too much power so I try to help any alternative. Their
selection isn't as good as Amazon, but usually it arrives quicker. Books are
not quick, but cheaper than BN (even though BN ships them)

They must be burning lots of cash though. I placed a $100 order with about 7
items and it came in 6 different boxes.

~~~
tedmiston
That's interesting. Mine have always arrived together in one box per order.
Are you ordering a lot of books or some broad variety of items?

~~~
rb808
Yes was a variety, all came from different retailers.

------
yomly
Call me a sceptic but a hail-mary acquisition of this kind is not going to
save Walmart.

Amazon is built through and through as a tech company. The people running it
all have tech backgrounds so they're all able to get behind the Bezos vision
of automation and scale trumping all.

To give you an idea of how savvy the management of Amazon are, I heard rumours
that Diego Piacentini (Bezos' lieutenant managing the retail business) was
known to roll out his own SQL queries. My own head of the team, who was a more
conventional "retail guy", barely knew how to use excel and had chiefly gotten
to where he was by politics and tenureship, despite being younger than Diego.
Whether it is true or not, it gives an idea of the mindset and skillset valued
at the top of Amazon.

Now I'm almost certainly biased given that I've worked for Amazon and not for
Walmart, but I'd be willing to bet that Walmart has more of the latter "old
school" types than CS folks looking to solve new fields. And to me, that says
that the odds are tipped against this integration being successful as catching
up with a tech company would require an overhaul of Walmarts entire
infrastructure and culture. Not to mention that Walmart are at the mercy of
their shareholders, whilst Bezos is still majority shareholder.

------
cosmoharrigan
Are there any sources indicating what percentage of sales or units are from
third-party retailers?

------
plandis
This is interesting. I always assumed that Jet was operating at a loss for a
significant amount of their stock due to shipping costs.

I wonder if Walmart's more physical presence can help with this?

------
throw42
Guess who is on Walmart's board, and likely voted when the acquisition
discussion was happening.

Our very own Marissa Mayer. We also have Kevin Systrom on teh WM board.

------
blackaspen
Based on how Walmart's eCommerce has failed to grow I think this is a waste of
$3B. Hopefully the Jet employees get a nice payday out of it.

------
Fej
I knew this was their plan as soon as they pivoted away from the "club"
business model.

Damn shame, I was hoping to maybe apply there at some point.

------
JHutson
So what does this all mean for people currently purchasing shares of Jet? It's
still a penny stock...but will this change later in the year when the merger
is complete or perhaps in 2020 when Jet claims it will be profitable? Based on
the valuations of the company's worth, where do a analysts estimate Jet stock
to go?

Thanks!

------
mabramo
They came to my university to recruit last spring. I bet whoever got that job
feels real good right now.

------
perseusprime11
I doubt this will change the trajectory of Walmart. Bezos has the upper hand.

------
mikeyjkk
In cash? Really?

~~~
dubcanada
Walmart has money, am I missing something or is there a reason they would not
want cash?

~~~
mattmaroon
In startupland, one typically buys another with stock because they don't have
much cash and their stock is arguably overvalued. In real business-land, cash
is pretty common.

------
dmode
This seems like a very average deal for investors. They would have similar
returns if they invested that money in Amazon or Facebook stock

------
ismdubey
Compare this with Dollar Shave Club acquisition for 1B. Either Jet is
overvalued or DSC is undervalued !!!!

------
jackmott
Jet.com is a big user of the F# language. Will be interesting if they get
Walmart on board too.

~~~
mason55
Walmart.com is a pretty big user of Scalia already

~~~
kalari
It makes sense they want to buy Jet, since what they are currently using is
dead.

~~~
ihaveajob
Apparently the replacement has been proposed already, but the powers that be
keep shutting that down, too.

------
nine_k
On one hand, being bought for $3B. On the other hand, joining Walmart. (Sorry,
could not help but being a bit redditish about it.)

~~~
johnwheeler
Walmart has a killer IT department. They're known to run it like a startup.

------
ArtDev
I hope they don't scrap jet.com (but I suppose they will). My wife and I just
discovered it rather recently :(

Am I the only person who would rather pay more than have to order anything
from walmart.com?

Aside from serious ethical issues, my issue with Walmart is that manufacturers
produce lower-quality brand-name items just for Walmart. Its hard to know what
you are actually purchasing.

