Wal-Mart is not typically viewed as an advertising company, yet the retail behemoth now generates more revenue from its advertising operations than some mid-sized social media firms. Given its recent growth trajectory and strategic acquisitions to bolster this segment, Wal-Mart is poised to become a more formidable player in the advertising industry.

Wal-Mart reported advertising revenue of nearly $6.4 billion for its fiscal year ending January 31. This figure represents approximately 4.3% of its total e-commerce sales, which surpassed $150 billion last year. In comparison, advertising constitutes about 12% of Amazon's total revenue when excluding its cloud computing and physical store operations.

Retailers have increasingly become major global sellers of advertising, rivaling traditional media and entertainment giants. Amazon's advertising business, with over two decades of history, primarily earns revenue from merchants purchasing ad placements to promote their products. Recently, Amazon has expanded further into the entertainment space by selling ads on its Prime Video streaming platform.

Wal-Mart has also operated a third-party marketplace and developed its digital advertising business for roughly a decade. The company is extending its advertising reach beyond retail. Over the past two years, it has announced several acquisitions to strengthen this segment, the latest being the tech firm Vibe. Its 2024 acquisition of TV manufacturer Vizio, which sells ad inventory on home screens and other interfaces, directly accelerated the growth rate of Wal-Mart's ad business from around 29% to approximately 50%.

The division's growth reached 37% in the first quarter, indicating Wal-Mart continues to expand at a rapid pace. This growth rate surpasses that of most other advertising service providers. For instance, Amazon's advertising revenue grew only 24% over the same period, although from a much larger base.

Management at Wal-Mart asserts that significant growth potential remains for its advertising operations.

During a February investor call, Chief Financial Officer John David Rainey stated, "When you look at our advertising revenue as a percentage of Gross Merchandise Value, we're still in the middle of the pack. There's a lot of headroom to grow that business based on our existing capabilities, and at the same time, the denominator—our total GMV—continues to grow."

In an April call, Rainey noted that Wal-Mart's advertising business could "easily" double its current scale relative to GMV to reach best-in-class levels.

The robust growth of Wal-Mart's ad business highlights the increasing influence retailers wield in the digital advertising market. As marketers place greater emphasis on ads that drive actual sales, Wal-Mart holds an advantage over TV ad services in clearly demonstrating that its platform ads lead to purchases, thanks to its complete transaction data and ability to target users with existing purchase intent.

Management credits the advertising growth to the expanding third-party marketplace, where external brands sell directly to consumers on Wal-Mart's website. They reported that in the quarter ending April 30, marketplace revenue grew nearly 50%, with ad spend from sellers increasing by over 50%. A larger marketplace attracts more sellers, which in turn requires more advertising for products to be easily discovered by shoppers.

Recent acquisitions are expected to further fuel growth by expanding Wal-Mart's advertiser base beyond its physical stores and online marketplace. For example, companies like insurers or automakers, which might not typically advertise on Wal-Mart's website, may pay to reach viewers on Vizio TVs. The acquisition of Vibe helps small and medium-sized businesses advertise on streaming TV, allowing Wal-Mart to capture a greater share of TV advertising.

While management's focus on this high-growth segment is logical, it carries potential risks of overexpansion. A former Amazon retail executive once likened the ad business to heroin: it provides easy profits but can alienate both consumers and platform merchants. As Wal-Mart's advertising division continues to grow, navigating this challenge will be crucial.