Is Walmart taking market share from Amazon?

walmart (WMT -1.00%) might have gained market share in US e-commerce last year, but it didn’t happen Amazon (AMZN -0.21%).

The big-box retailer ramped up its e-commerce business in 2022, increasing total US online sales by 12% for the full year. That’s faster than the US Census Bureau’s estimate of 6.5% growth for total internet sales. It also compares favorably with Amazon’s reported online store sales, which fell even last year on a constant currency basis.

But looking at those reported numbers doesn’t paint the full picture of what’s going on in online retail in the US. Amazon investors worried that Walmart is eroding its market dominance may want to take a look.

The truth requires an apples to apples comparison

The 12% figure reported by Walmart includes its entire e-commerce business: direct sales, third-party services, and advertising. Therefore, it should be compared to Amazon’s overall e-commerce business.

While online sales stagnated for Amazon last year, it was still growing its third-party seller services and advertising business. In fact, sales in North America were up 14% on a constant currency basis. If you discount the slower growth of physical stores during the year, Amazon’s online-related revenue grew even faster. Amazon’s sales in North America without physical stores are perhaps most comparable to the 12% increase reported by Walmart US.

Walmart also said it made more than $80 billion worldwide from e-commerce last year. That’s more than the $73.2 billion it generated last year, or more than 9% growth. Indeed, that’s faster than Amazon’s total e-commerce-related revenue growth of less than 6%. That suggests that Walmart is still seeing strong progress in e-commerce in international markets. But one area of ​​particularly strong e-commerce growth for Walmart is China, where Amazon provides limited marketplace services.

In other words, it doesn’t appear that Walmart’s growth is at the expense of Amazon’s.

What to watch in the future

There are a few areas investors should pay attention to as Walmart continues to try to beat Amazon in e-commerce.

First, there is the retail advertising industry. Walmart first broke out its ad revenue during its fourth-quarter earnings call, letting investors know it generated $2.7 billion in ad revenue last year. That pales in comparison to Amazon’s $37.7 billion in sales, but Walmart is growing faster. Total ad revenue grew 30% this year, with Walmart Connect in the US growing even faster. In comparison, Amazon’s advertising business only grew 21% last year.

Walmart’s advertising business could face tougher comparisons in the second half of 2023 after it made changes to its advertising business midway through last year.

Importantly, Amazon forecast revenue growth of between 6% and 10% on a constant currency basis for the first quarter, which disappointed analysts. While that includes its cloud computing business, it is stronger than Walmart’s outlook for revenue growth of 4.5% to 5%. Walmart also disappointed with a full-year forecast of only 2.5% to 3% and comparable store sales growth of only 2% to 2.5%. In other words, Walmart expects a marked slowdown in growth.

It seems likely that Amazon will once again surpass Walmart’s e-commerce growth in 2023, even as the competitor outperforms other players in the space. Amazon remains the dominant force in the online retail industry, with a vast network of sellers and customers ensuring it continues to gain market share.