If you’ve been searching for an outrageous but intriguing investment thesis involving a prominent Canadian company, Scott Galloway has a Christmas gift for you.
The notoriously outspoken professor of marketing at New York University says it would make sense for FedEx Corp. to join forces with Canada’s own Shopify Inc. to create an “anti-Amazon.”
Mind you, an even more likely scenario is one in which Walmart Inc. buys the delivery company, he says.
“In the next 24 months, FedEx will either be acquired or lose an additional 40 per cent plus in value,” Prof. Galloway wrote in his weekly newsletter Friday. “The likely acquirer is Walmart. The gangster move: a merger with Shopify.”
Prof. Galloway argues either tie-up would make a lot of sense for the beleaguered delivery giant.
All of this amounts to nothing more than idle speculation by an academic known for his willingness to stir things up. But Prof. Galloway is also a successful entrepreneur who has served on the board of New York Times Co. and Urban Outfitters Inc., among other companies.
FedEx’s market value has been evaporating since Amazon.com Inc. launched its own delivery service in February, 2018. The stock market capitalization of the once-dominant courier company has shrunk by 39 per cent, or US$25-billion, in less than two years.
FedEx’s most recent earnings announcement on Tuesday disappointed investors yet again. Managers delivered a flurry of excuses, including the later-than-usual date of U.S. Thanksgiving this year, while chief financial officer Alan Graf assured analysts that results will improve in coming months.
Prof. Galloway isn’t buying it. Amazon.com, he argues, benefits from the way its delivery service integrates with its retailing operations. Plus, it is paying its gig economy delivery drivers considerably less than FedEx. Thanks to such advantages, its startup delivery arm has already grabbed nearly a fifth of the market for e-commerce deliveries in the United States.
For a standalone FedEx, the future is bleak, Prof. Galloway argues. “There will be a lot of macho battle cries from FedEx, some heroism, and an increasing stench of death,” he writes. The courier company suffered another painful blow last Monday, when Amazon.com banned third-party sellers from using FedEx’s ground service to deliver to members of Amazon’s Prime service.
What could brighten the outlook for FedEx? A takeover by Walmart, Prof. Galloway argues. From Walmart’s perspective, the deal would be affordable, given that FedEx’s market capitalization has shrivelled to US$38-billion, a tiny fraction of the retailer’s US$340-billion.
The acquisition would buttress Walmart’s grocery offering by ensuring speedy delivery. It would also allow the giant discounter to integrate FedEx’s enormous distribution capacity with its network of thousands of bricks-and-mortar stores.
But that’s not the only alternative. A “more interesting and bolder tie-up,” according to Prof. Galloway, would be a merger between FedEx and Shopify, the Ottawa-based provider of an e-commerce platform for online stores.
A merged Shopify-FedEx could offer third-party merchants a seamless way to both sell their products online and deliver them to customers. Unlike Amazon.com, it would allow merchants to safeguard their data and control the customer experience.
Surprisingly, Shopify’s market cap is now larger than FedEx’s – US$45-billion compared with US$38-billion. A merger of the two would be an audacious gamble, but would have definite appeal to many investors, Prof. Galloway says. “The much larger firm would have a combined market cap of [US]$83-billion, high single-digit revenue growth” and “would captivate the markets,” he asserts.
Perhaps so. And if FedEx does cast an eye northward for potential partners, don’t say you haven’t been warned.