Walmart’s ad business hits $2B as automation plays larger role

Linda J. Dodson

Dive Brief:

  • Walmart’s advertising business generated $2.1 billion in revenue last year as the big-box retailer expanded its marketing technology stack, according to an earnings release. It was the first time the company has broken out advertising financials in its reporting.
  • In the U.S., Walmart Connect saw the number of advertisers using its services grow 136% year-on-year in 2021. Discussing the fourth-quarter and full-year results with analysts, executives stated they see “large growth opportunities” ahead and reaffirmed that they expect Walmart Connect will be a top-10 advertising platform within the next few years.
  • Technology will play an increasingly central role in that plan. Roughly half of Walmart’s ad sales in Q4 — a quarter that contains the crucial holiday window — came from automated channels, executives said. That level of activity is more than double what the retailer saw over the same period the year prior.

Dive Insight:

Like others in the retail category, Walmart is starting to break out the financials of its advertising sales in greater detail as that segment becomes a significant driver of growth. The demand for retail media, where stores apply their troves of in-store and online purchase data for the purpose of advertising services, has skyrocketed as consumers adopt more digital habits while brands contend with the deprecation of key ad-targeting tactics like cookies.

Walmart is the largest retailer in the world and has quickly grown Connect into a formidable offering, with executives signaling that the positive momentum will continue in the year ahead. They specifically cited an opportunity to more closely link Walmart Fulfillment Centers with advertising, a bit of synergy that will allow merchants to transact more frequently amid a period of prolonged supply-chain crunch.

“[That’s] really the key to the growth of advertising, is have the large seller and supplier base that can reach our customer base,” John Furner, president and CEO Walmart U.S., said on the earnings call.

The earnings release notes that Connect generated $1.6 billion in recorded net sales in 2021, while the rest of its take stemmed from $500 million “recorded as a reduction to cost of sales” based on the nature of various advertising arrangements. Still, it’s clear that more brands are flocking to Connect as they look to place their messages closer to where people are browsing for a purchase. Walmart’s e-commerce sales grew 1% YoY in Q4, but were up 70% on a two-year basis, reflecting how much the pandemic has enshrined online shopping behaviors.

Overall, Walmart’s Q4 earnings were positive, with the retailer’s comparative U.S. sales up 5.6% and revenue beating analysts expectations.

Walmart expects Connect will become more efficient as more of its operations are automated. The company is enacting some ambitious bids to scale its tech infrastructure. Last year, Walmart revealed it was developing a demand-side platform (DSP) with the help of The Trade Desk, an ad-tech firm specializing in the DSP space. Walmart DSP was available to select suppliers around the holidays — the same period where sales derived from automated channels spiked.

Walmart sharing more figures on Connect helps create contrast with rivals. Amazon has also started opening up more about its ad bets, which used to be folded under the “other” reporting segment but now occupy their own breakout. The e-commerce giant saw advertising services generate $9.7 billion in revenue in Q4, a 32% YoY gain. Amazon accrued about $31.15 billion in ad revenue in 2021.

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