Almost a third of Walmart’s profit now comes from selling ads
Advertising sales have become increasingly important to Walmart’s bottom line.
The company’s global advertising business saw year-over-year growth of 28% — the most this fiscal year. Its retail media network, Walmart Connect, grew 26% in the U.S. International advertising was up 50%, attributed largely to India subsidiary Flipkart’s Big Billion Days sales event in late September and early October, most of which fell into the third quarter instead of the fourth quarter as in previous years.
As of the third fiscal quarter, which ended in September, advertising has grown to become almost a third of Walmart’s overall operating income of $6.7 billion, Walmart CFO John David Rainey told investors Tuesday. That’s just three years after the company established its media business, Walmart Connect.
“We’re building a highly unique retail media platform, and I’ve been encouraged by ongoing tests showing customer receptivity to growth in digital ads, especially where ads help customers discover relevant items that are trending, navigate and compare choices and enjoy Walmart’s everyday low prices,” Rainey said.
Advertising is just one part of Walmart’s emerging Amazon-like flywheel of digital services that contribute to each other’s growth. The flywheel also includes its third-party marketplace, membership program Walmart+ and data analytics platform Walmart Luminate, soon to be called Scintilla.
Rainey told CNBC the e-commerce business is “getting very close to profitability” as customers have been willing to pay an extra fee for faster shipping of three hours or less. The company’s global e-commerce business grew 27% this past quarter, per financial filings. E-commerce now makes up 18% of Walmart’s business — up three percentage points from a year ago, according to Rainey.
Walmart’s marketplace is fueling its ad business
Investments in Walmart’s flywheel of services seem to be paying off, as the company says its marketplace has driven the growth of its ad network, Walmart Connect. Many of Walmart’s advertisers are third-party sellers on its marketplace, which has seen 42% in sales growth over the past year.
“If you’re a marketplace seller, it’s very competitive on large platforms like Amazon and Walmart Connect; you can’t guarantee that you will have organic visibility on the site,” said Andrew Lipsman, a retail analyst and consultant for Media, Ads + Commerce. “Advertising is a way to guarantee some level of visibility to drive product sales, to drive volume. It’s just a critical piece of the marketplace equation.”
Walmart doesn’t report how many sellers or advertisers it has, but Marketplace Pulse reported in September that Walmart’s marketplace reached 150,000 active sellers — up from just 50,000 in 2022. Meanwhile, Amazon has added 5 million sellers since 2018, per the same source.
The marketplace is the foundation of the retail media flywheel, as it was with Amazon’s, Lipsman said. “All these things are working together right now for Walmart,” he said, adding that the ad business will only grow when Walmart adds more opportunities for digital advertising in stores. Right now, its in-store advertising opportunities are mostly limited to the TV wall and checkout screens. “They have an ability to scale a large in-store business. Walmart Connect’s best days are very much ahead of it.”
Growth with higher-income shoppers
Rainey added later in the call that while ancillary businesses like advertising and membership programs are important growth drivers for Walmart, they don’t work without the core retail business. That, too, has been doing well. The company raised its sales forecast for the full year as general merchandise — or non-grocery — sales grew for the second quarter in a row after 11 straight quarters of declines, per CNBC.
Walmart’s net sales in the U.S. grew 5% over the past year from $109.4 billion to $114.9 billion.
Households making more than $100,000 per year made up 75% of Walmart’s U.S. market-share gains, CEO Doug McMillon said on the earnings call. John Tomlinson, global director of research for research and analytics firm M Science, said the company’s partnership with American Express since 2021 to offer Walmart+ for free to American Express Platinum Card holders is one way the company has worked to win over this demographic and get them to use its same-day delivery instead of Amazon’s.
“The U.S. consumer will spend when they find value and convenience,” Tomlinson said. “Walmart seems to have the marriage of both.”