Advertising may be just a fraction of Walmart’s overall revenue – but it’s a nerve center for growth.
Walmart, which reported its quarterly on Tuesday, generated total revenue of $153 billion in Q2 alone, the vast majority of which came from store sales.
But although Walmart didn’t disclose its advertising revenue for the second quarter, it did say that its ads business grew 30% year-over-year. For reference, Walmart’s advertising business, which is primarily the Walmart Connect ad platform, made $2.1 billion in 2021.
A 30% YoY bump in Q2 means that Walmart’s ad revenue last quarter was likely in the mid-to-high hundred-million-dollar range.
One might then wonder why advertising and other businesses that appear marginal to Walmart’s current revenue makeup, such as third-party online marketplace sellers and subscription memberships, are front and center for the company right now?
“We continue to advance our flywheel strategy and diversify our income streams,” said John Rainey, Walmart’s CFO, pointing to the company’s ads business, the 240 million SKUs that are now available on Walmart.com and Walmart+, which doesn’t disclose its subscriber count.
The online businesses are also highly synergistic, he said.
For example, Walmart just announced that the Paramount+ ad-supported tier, which costs $5 per month as a standalone subscription, will be bundled for free into Walmart+ memberships. And, just as importantly, Walmart Connect will secure a guaranteed chunk of the premium CTV inventory it can package on its ad platform.
Advertising isn’t just low-hanging fruit, though, said Doug McMillon, Walmart’s president and CEO.
“Even more encouraging than the numbers,” McMillon said, in reference to Walmart’s ad revenue growth and shopper data graph, is that the ad business helped improve customer experience on the site by surfacing better deals and the right products.
But there’s another important reason why Walmart is investing more in its Walmart Connect ad platform – which is the fact that it’s the highest-margin revenue that Walmart can earn.
“The relationship between digital growth, marketplace growth and advertising is something that we’re trying to take advantage of,” McMillon told one investor.
(That investor had specifically asked Rainey what he thought about the ad platform opportunity, having overseen a similar category expansion at PayPal, where Rainey was CFO and EVP of global customer operations until this May, when he joined Walmart.)
And the ad business also generates valuable customer insights.
“Knowing more about customers and the way they shop is important,” said John Furner, CEO of the Walmart US group.
Walmart+, Walmart’s third-party merchant marketplace and ecommerce ordering “all help us be able to identify the right sellers and suppliers that we can connect,” Furner said. “Hence the name: Walmart Connect.”
But Rainey, on his first Walmart earnings call, was able to sum up appeal of advertising for Walmart in one line: “I can’t remember a business with the margin structure of the advertising business here at Walmart – and having 30% growth for the quarter.”
