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0:00
Hello. I'm Professor
Mike MacDonald.
I'm a professor of finance
at Fairfield University
in Fairfield, Connecticut.
Today, I'd like to talk
to you about the concept
of real options and how it
can impact stock valuation.
Specifically, we'll look at
this topic through the lens
of Walmart's buyout of Jet.com.
0:24
Now, you might be familiar
with the concept of options.
We think about options
in an investment context
as it relates to puts and
calls and things like that.
All real options are
related to this idea.
The basic concept with
an option is that it
gives the holder the
ability to decide
whether or not to take
an action in the future,
in exchange for a small
upfront cost today.
Options, as I said, are typically
associated with stocks,
but corporations also
use this concept
through what we call
'real options'.
A real option is a choice
made available to managers
of a company concerning business
investment opportunities.
We refer to it as 'real'
because it typically references
projects involving
a tangible asset
instead of a
financial instrument.
That's the basic idea.
1:15
Let's set the stage.
Now, you might be
familiar with Walmart.
They're the world's largest
retailer by dollar volume of sales.
Today, Walmart has a very robust
online e-commerce business.
But if we rewind the clock,
they did not have this strength,
even as recently as 2015.
Instead, the firm had a
slow-growing stable offline
and brick-and-mortar presence,
but it was actually
losing very badly
in e-commerce to Amazon.
