Walmart wants to sell ads in your living room
Walmart wants to sell ads in your living room
After a solid 2023, the company is trying to buy Vizio.
Walmart kicked off 2024 with a semi-big announcement. It plans to acquire television manufacturer Vizio and bolster a key driver of its newfound profitability: advertising. Walmart's advertising segment soared by 28% to $3.4 billion last year, including a 76% increase in international markets. Domestically, ad sales grew 22%, with Marketplace sellers contributing to more than a 50% improvement. "This acquisition accelerates the build-out of our advertising platform into the connected TV business," CEO Doug McMillon told investors earlier this week.
Early financial projections indicate that the business could add at least $300 million to $400 million in EBIT annually, which translates to about a 10% profit margin, more than three times what Walmart earns on its traditional retail business.
The Arkansas-based giant ended the 2023 fiscal year on a high note, with a robust fourth-quarter performance. The retailer reported a 5.7% increase in fourth-quarter revenue to $173 billion and a 13.2% jump in operating income, adding $1.7 billion of profit to its bottom line.
Prices, Prices, Prices
Walmart U.S. is experiencing deflation in general merchandise, with a softened price decline in Q4. At the same time, food and consumables saw a slight price increase compared to last year.
For Walmart U.S., year-end retail prices on like-for-like items increased by about 80 basis points, indicating a slight inflation overall.
Walmart's U.S. comparable sales grew by 4%, driven by increased unit volume and market share gains, with like-for-like sales inflation moderating to about 1%.
Private brand penetration has increased in several countries, including the U.S.
North American Highlights
U.S. sales reached $118 billion for the quarter. Walmart U.S.'s annual revenue reached $441 billion, up 5% since last year.
Gross Profit Margins rose slightly, driven by advertising and better inventory management.
Two-thirds of their share gain was through higher-income consumers and digital channels.
Changes to Walmart Compensation and Stock
Split the stock 3:1. Management said this was done primarily to make it easier for low-paid associates to buy stock through their stock purchase program. Right now, the company will match 15% of stock purchases up to $1,800.
I have no idea if that rationalization makes sense. You'd have to ask a pure finance person, but this seems like a good thing, no?
The company also added stock bonuses to U.S. store manager compensation.
Looking ahead to 2024
Walmart management projects sales growth of around 4% and even faster operating income growth of 4-8%.
With limited pricing, the company expects to meet the goals through reduced markdowns and a shift towards higher-margin areas like advertising.
They said it:
Walmart CEO Doug McMillon on the ROI on AI investments
As I talk to other CEOs and we learn here, I think it's still too early to try and quantify this specifically. I think as we look back on what develops, we can probably tell you in the rearview mirror how things played out from a cost perspective, for example. But the thing we're most excited about that's already happened is the way search has improved. The way generative AI helped us really improve a solution-oriented search experience for customers and members is the thing that we're most excited about. And it happened pretty quickly. And it impacted Super Bowl search results. We gave you an example about it earlier. And the team is learning how to do that across all of our markets and the entirety of the company so that's also exciting.
Honestly, this doesn’t seem particularly convincing to me.