Walmart will get more profit from services, ad sales -CFO over the next 5 years

NEW YORK, March 7 (Reuters) – More of Walmart’s (WMT.N) future profitability is likely to come from advertising sales on Walmart.com and from fees it collects from merchants using its online marketplace and delivery services than from merchandise sales at its 10,000 stores, the chief financial officer said Tuesday.

“Today, the vast majority of our total profit is attributable to physical stores in the US,” said John David Rainey, Walmart’s CFO, at a Raymond James Conference.

“If you fast-forward 5 years, we’re much less dependent on that as a revenue stream than some of these other high-growth parts of our business.”

Services, such as the fees Walmart collects from third-party sellers on Walmart.com, the discount it gets when Walmart fulfills those orders to shoppers, and the dollars advertisers spend through Walmart’s growing retail media business, are the higher-margin, faster-growing parts of Walmart’s company, Rainey said. Over time, they will change the composition of Walmart’s profit and loss statement, he said.

Retailers ranging from Amazon (AMZN.O), Target (TGT.N) and Walmart Inc to grocers such as Tesco Plc (TSCO.L) are working aggressively to attract major advertisers to their websites. Recently, Amazon reported $11.6 billion in revenue from its advertising business in the fourth quarter.

Walmart’s retail media company, which was rebranded as Walmart Connect in 2021, offers brands advertising space in its U.S. stores and allows the use of customer data to make ads more effective even on websites and apps that Walmart doesn’t own.

The company has grown rapidly since then, with sales up nearly 30% to $2.7 billion in the fiscal year ended January 31. In the fourth quarter, ad sales were up 41% year-over-year, the company said last month.

Walmart, the largest retailer in the world by revenue, has also invested heavily in building out its third-party marketplace at Walmart.com, which currently offers more than 400 million products, according to Rainey.

“The more viewers come to your digital platforms, the more advertisers are willing to spend,” Rainey said, adding that advertising margins are typically in the 70% to 80% range. In contrast, Walmart’s margins fell nearly 1 percentage point to 24.1% in the last fiscal year.

“The common thread running through all of these companies is greater digital engagement with our consumers,” said Rainey, who took over as CFO in April last year.

“Convenience…really resonates with consumers, and it allows us to have these points of distribution as consumers become more e-commerce-inclined over time. They are all strongly interrelated.”

Reporting by Siddharth Cavale in New York and Uday Sampath Kumar in Bengaluru Edited by Nick Zieminski

Our Standards: The Thomson Reuters Principles of Trust.