Walmart ad business soars 130% to $2.1 billion

Walmart Inc. said Thursday that its advertising business, Walmart Connect, has soared 130% over the past year to $2.1 billion.

Walmart WMT,
+4.01%
Managing Director Doug McMillon noted that advertising is a “high margin” business that will continue to grow alongside the retail giant’s Marketplace arm to eventually “become one of the top 10 advertising businesses to middle term”.

“Connecting B2B opportunities, like advertising, allows us to grow revenue and make key investments at the same time,” he said on the earnings call, according to a FactSet transcript.

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The advertising activity is already making a positive mark on the results.

“Consolidated gross margin rate increased five basis points, with Walmart’s U.S. gross margin rate increasing 54 basis points, primarily reflecting price management resulting from higher mix costs, as well as than the benefits of a growing advertising business, partially offset by a higher supply chain. costs,” chief financial officer Brett Biggs said on the call.

Supply chain costs exceeded the company’s forecast by $400 million.

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CFRA’s Arun Sundaram says investors are “underestimating Walmart’s evolving business model,” which includes advertising.

“We have a business that is becoming increasingly digital,” McMillon said.

“The e-commerce business, first party, third party, is growing. This gives us the opportunity to increase advertising revenue. It has grown at a rapid pace and it is growing in all markets. »

The CFRA is pricing the purchase of Walmart stock with a 12-month target of $165, down from $169 previously.

Prior to the earnings announcement, KeyBanc Capital Markets noted a high number of job openings and promotions in the Walmart advertising industry.

Walmart joins a growing list of retailers that have entered the advertising business, including Best Buy Co Inc. BBY,
-1.00%
and Amazon.com Inc. AMZN,
-2.18%,
which has seen its advertising business reach $31 billion.

Cowen believes there is still more progress to be made as the company continues to evolve.

“We are encouraged by Walmart’s filing of trademark applications for digital currencies, virtual goods, [and] e-wallets because Cowen thinks augmented reality NFTs, [and] retail gamification will be an important phase of next-gen retail,” the analysts led by Oliver Chen wrote.

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“Over time, Walmart should have the foresight and technological flair to create new, immersive experiences that can simplify shopping and play a role in the hybrid consumer journey.”

Walmart is introducing technology as shoppers become more high-tech.

“We believe that social commerce around the world and what’s happening with wearables, AR and mixed reality will be part of our future,” McMillon said.

Walmart reported fourth-quarter earnings that beat expectations and increased its dividend.

Walmart stock rose 3.5% on Thursday and has fallen 6% over the past year. The Dow Jones Industrial Average DJIA,
-1.78%
gained 8.5% over the past 12 months.

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