Advertising soars, stores struggle: The conflict of Walmart investors

Walmart stock is plummeting in pre-market trading in New York following the release of its financial reports.

The company beat forecasts in both revenue and, most importantly, net profit, where the positive surprise stood at nearly 10%. However, what disappointed investors was the growth in traditional sales compared to expectations, which is sending the stock down by up to 6% in pre-market trading in New York.

Walmart, the retail company with the highest market capitalization in the world and the largest company overall in terms of revenue and sales volume, has long been more than just a physical retail company. It also holds an e-commerce arm, with which it competes directly with Amazon. But the highlight is, of course, its digital advertising.

Walmart and digital advertising?!

Yes. When we hear about digital advertising, we think immediately of Google and Meta, but it turns out that Walmart is also strong in this field. It utilizes its 10,500 branches to plant advertising stations in them, alongside advertising space on its website and in its app. Its great advantage, compared to Google and Meta, is that while they know what you are searching for, Walmart knows what you are buying at the bottom line, which is a huge advantage for many advertisers.

The interesting thing is that compared to its traditional sales, the advertising sector constitutes only 1% of total revenue, and yet it accounts for no less than a third of the operating profit.

The reason is that compared to traditional sales, where the gross profit margin is very low, in the field of advertising it stands at over 70%.

Despite this, as mentioned, the slow growth rate of traditional stores caused disappointment among investors. The reason for this is that physical stores are essentially the 'fuel' of the advertising engine: if fewer people buy in stores, Walmart will have less data to sell to advertisers, and the growth of its most profitable engine could be harmed.