The deal—Walmart’s biggest ever—gives it greater access to India’s e-commerce market, which is estimated to grow to $200 billion in about a decade. But it will take some time for the business to turn profitable.

(Bloomberg)—Walmart Inc.’s deal to buy a controlling stake in India’s biggest online seller is meeting skepticism on Wall Street.

The world’s largest retailer will acquire a 77% holding in Flipkart Group for $16 billion, the companies said earlier Wednesday. Flipkart co-founder Binny Bansal and other shareholders will hold the remainder. The tie-up values the Indian e-commerce giant at about $20.8 billion and marks a blow against rival Amazon.com Inc. as the battle for e-commerce supremacy goes global.

Flipkart is No. 9 in the Internet Retailer 2018 Online Marketplaces.

The deal—Walmart’s biggest ever—gives it greater access to India’s e-commerce market, which Morgan Stanley has estimated will grow to $200 billion in about a decade. But it will take some time for the business to turn profitable, and analysts on a Wednesday morning call about the deal adopted a cautious tone.

“As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future,” Moody’s analyst Charlie O’Shea wrote in a note.

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Walmart shares dropped as much as 4.2% to $82.13 as of 9:31 a.m. in New York—the lowest intraday price since October. The company’s stock was already down 13% this year through Tuesday’s close.

The retail giant declined to give a specific timetable on profitability, saying only that Flipkart’s losses should decline “in the mid to long term.” The deal will shave 25-30 cents per share from this year’s earnings, with that impact doubling the following year.

“It’s typical of a business like this that, as you scale up, you will have losses. We expect those losses to continue for a little while,” Walmart’s chief financial officer Brett Biggs said in a phone interview.

With the Walmart tie-up, Flipkart gets additional capital and expertise to battle Amazon, which has spent billions of dollars to gain customers in India. Online sales in the world’s second-most populous nation are growing about 35% a year, according to data tracker Euromonitor, fueled by a rising middle class and urbanization that present an attractive environment for e-commerce. Amazon is No. 1 in the Internet Retailer 2018 Top 1000. Walmart is No. 3.

“We’ve been looking at this business for some time. India needs no introduction; it’s a fantastically growing market. And it fits right in with our strategy,” Judith McKenna, Walmart’s international CEO, said in a phone interview.

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Walmart was upstaged earlier Wednesday when Masayoshi Son, CEO of SoftBank Group Corp., confirmed during a briefing in Tokyo that the U.S. retailer had agreed to buy control of Flipkart. SoftBank invested $2.5 billion in the Indian company and that stake will be worth about $4 billion in the deal, Son said.

Indian plan

For the U.S. retailer, acquiring a stake in Flipkart enables it to tap into India’s retail market without building stores. Walmart once envisioned operating hundreds of locations across India but it has been unable to open traditional units because of long-standing governmental rules for so-called multi-brand international retailers. Walmart entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013. It currently operates 20 wholesale clubs in India that serve small businesses.

Walmart’s investment includes $2 billion in new equity funding, which the companies say will be used to spur Flipkart’s growth. The companies said they’re also in talks with other potential investors, which could result in the U.S. company’s stake being lowered, though it will retain majority ownership. Flipkart will maintain a separate brand and operating structure, the companies said.

The deal is the largest-ever in e-commerce, according to data compiled by Bloomberg.

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The deal represents a missed opportunity for Amazon CEO Jeff Bezos, who has also failed to create a meaningful presence in China. Amazon needs to succeed in another high-growth market to prove it can effectively replicate its model beyond North America, and it has been aggressively expanding in India. Bezos has committed $5.5 billion to the country and his local chief, Amit Agarwal, has made progress by adapting the site to local conditions.

“Amazon is cloning itself in India, while Walmart goes for an acquisition. The overall experience of Walmart in the U.S. relies a lot in their physical retail presence,”  says Nicolás Avila, vice president of technology, Globant. “Merging this experience with a pure digital player like Flipkart will be challenging but very important to cement Walmart’s ability to land in more regions in the future. This acquisition should not only help keep Amazon in check, but it will be interesting to see how much of Flipkart’s buying experience is incorporated to Walmart worldwide and vice versa.”

Despite its size and global clout, Walmart has found it necessary to forge alliances in its battle against Amazon, which last year bought Whole Foods Market to gain a foothold in the U.S. grocery industry. In China, Walmart has acquired a 12% stake in e-commerce player JD.com, and in Japan it teamed up this year with Tokyo’s Rakuten Inc. India is the next big potential prize after the U.S. and China, where foreign retailers have made little progress against Alibaba Group Holding Ltd.

“We’ve been talking about how we want to get this global portfolio where we want it,” CFO Biggs said. “Nobody will be better positioned in Asia than we will be.”

Payments app

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Walmart executives said they were particularly interested in PhonePe, Flipkart’s mobile payments app, along with its fashion sites Myntra and Jabong. Walmart has tried to make a bigger push into apparel online with acquisitions like Bonobos and ModCloth, along with a partnership with department-store chain Lord & Taylor.

Flipkart’s sales grew more than 50 percent in its most recent fiscal year to $4.6 billion, Walmart said, compared with $11.5 billion for Walmart’s U.S. e-commerce business.

The deal also shows how Walmart CEO Doug McMillon is reshaping the company’s global operations, prioritizing faster-growing markets like China and India over more mature ones. Last month, the company agreed to cede control of its U.K. grocery chain, Asda, No. 11 in the Internet Retailer 2017 Europe 500, merging it with British rival J Sainsbury Plc, No. 4. Walmart will retain a 42% stake in that combined company.

Flipkart competes with Amazon across a range of product categories. Including fashion portals Myntra and Jabong, it controls 34% of India’s online sales, based on Euromonitor data, followed by Amazon, with 27%.

The Indian company has attracted investment from a range of companies that also includes Microsoft Corp., Tencent Holdings Ltd. and Tiger Global Management, which will retain stakes.

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