Walmart Inc. (WMT) Earnings Call Transcript & Summary

I think we're going to get started here. Good morning. My name is Kate McShane. I'm the hardlines, broadlines analyst at Goldman Sachs, and we are very happy to be at the Goldman Sachs Communacopia and Technology Conference. And it's my pleasure to introduce Walmart and moderate to today's fireside chat. So today, we have with us Ryan Mayward, Senior Vice President and General Manager of Walmart Connect U.S. Ryan joined Walmart in 2022, having previously served as Vice President of Ad Sales at Instacart and prior to that, as Sales Director at Amazon. Ryan, thank you for being with us today.

Thanks for having me.

I thought it might be useful just because, again, Walmart Connect, I feel like we're all kind of getting educated on what Walmart Connect does and its role at Walmart. But can you tell us a little bit about your current role and responsibilities at the business?

Of course, yes, happy to. So I joined the company about 4 years ago after a fairly long career in online advertising and a couple of stops between Amazon and Instacart. And I'm the General Manager of Walmart Connect, which means I run the business without product and technology, those roll up to global leaders. I started in sales at Walmart Connect and moved into the GM role about 8 or 9 months ago.

Great. How has your prior experience prepared you for the role that you have now? And what is your approach in growing this platform?

Yes. Well, it's funny. I started my career in this city 27 years ago. I just sort of piece that together this morning as I was thinking about our chat. And I've had a few experiences that really informed how I approach the business today. Many years ago, I worked at a company called Dakota in the '05, '06 time frame that got bought by AOL. And that was an early behavioral targeting ad network, which really informed how I thought about from the early days before DSPs, before retail media, how I thought about using data to better address customers with ads, building personas and profiles and doing things like personalization. Spent some time at NBC Universal, where we really learned the TV business. Funny, I thought I left that behind me, and then all the retailers decided or the largest retailers decided to get into the TV business. So I dusted off that knowledge and applied it here. And then joined Amazon in 2012, just as the ad business was getting started and ran their DSP business for about 9 years. And that's been extremely helpful. And my experience here at Walmart, where we have a sizable offsite business, a lot of DSP partnerships. And I think that retail media is maybe a label that is less app at describing the largest players in the retail space, the largest retailers that have advertising businesses, in part because the growth of the off-site business that a couple of these retailers are included which I'm sure we'll get into.

Yes. Yes. No, we're definitely going to talk about DSPs and TVs. And a little bit later on. But just given that the business has changed a lot in these last few years, maybe could you talk specifically about the evolution of retail media at Walmart?

Of course. I'd say that over the last 3 or 4 years, we've really undertaken the publisher to platform evolution. When I started at the company, we very much behave like a premium publisher. We offered advertisers -- a small number of large advertisers adjacency to the area and the app or the website where we were promoting holiday shopping moments like back-to-school or Halloween or holiday baking or Black Friday, Cyber Monday, selling the sponsorship offering and also had a nascent search business at the same time, most of the business was managed service. That is to say, we did the work for the advertiser. And that's fine. When you have a few hundred large brands that comprise most of your ad revenue. But as the marketplace started to take shape and we saw an opportunity to work with thousands and tens of thousands of advertisers, we knew that was the opportunity to build the performance advertising machine, the easy to buy ad platform that delivers a clear measurable ROI and can scale, can accommodate any number of advertisers and it's easy to use for a small brand that might spend $1,000 a month as a large brand would want to spend $10 million a month, right? It works equally well and building out a performance advertising platform self-service, API-enabled, building an ecosystem of service providers around us is the mindset has informed all of our decisions in the last couple of years. In terms of our -- how we approach our partnerships with social platforms, how we're entering the CTV space, it was really the basis for the rationale for the Via acquisition. And so this platform evolution is really where we're at now.

Great. And then with regards to just how competitive the retail space -- retail media space has become, can you maybe talk to us about how you think about acquiring the retail media dollars and what differentiates Walmart's advertising business from others?

Yes. I just think across the retail landscape, if we just look over the last 20 years of growth and evolution in the broader digital media business, what do we see? What are the characteristics of the largest ad platforms in the U.S. and really in the world outside of China have. They've effectively reach every customer in the country in which they operate. They invest heavily in earning more and more of those customers' attention, they are easy to buy. It's as easy for a small advertiser to spend a small amount monthly as it is a big brand to spend hundreds of millions of dollars. And there's a clear ROI component. They can see what they're getting for their ad investment. And I think that those qualities describe a couple of the retailers in the retail media space, 1 that's been around for a long time ad business that's over 15 years. and us, and we're newer at this, we're about 6 years into our journey. And I think that's the reason why much of the retail budgets are consumed by 2 companies with 1 owning a disproportionate share of that revenue. I think that the rest of the retailers struggle with some aspect of that playbook, those qualities that the largest ad businesses have, maybe they're a regional retailer and they struggle with reach or their specialty retail and they struggle with engagement. They don't have frequency of purchase. Maybe they're running their business on third-party technology, and they're not easy to buy are struggling with proof of performance. I don't see this dynamic changing much in the near term. And I do think that as the top retailers in the world who have advertising businesses that look more like the large ad platforms expand their capabilities, the retail media terminology kind of becomes less and less applicable over time. And that's really describing where we are now and our plans for the future.

So historically, too, I think within the time line, you've seen a lot more engagement on the retail media platform from 1P and bigger advertisers. But in recent quarters, you've seen stronger engagement in advertising from the marketplace sellers. So we wondered if you could maybe, again, walk us through a little bit of the evolution of that, what you're offering to the marketplace sellers. And how do you think about the relationship between marketplace and advertising?

Yes. And the relationship is symbiotic. The more marketplace sellers, the bigger marketplace becomes the larger our advertising business will be the more sellers that we have, the more assortment, assuming they bring their full catalog, more assortment we have, the more assortment we have, the more customer attention, the more GMV will generate. And the more competition there will be for those customers' attention. And I think that, that competition will play out in 2 ways across the marketplace. Sellers will compete on retail fundamentals, having the lowest possible price, having the fastest shipping speed, having great ratings and reviews, great content on their item detail pages. And the other way that they will compete is in advertising, and that will primarily show up in paid search. And so much of our growth has been driven by the emergence of marketplace over the last several years. And again, if we look at the shape of the revenue at the top ad platforms in the U.S., we see that, let's call it, 70-ish percent of, say, a Google or a Meta business might be mid-market and SMB business. That's a very great -- that's a great spot to be in because of the diversity of the advertisers that really insulates them from any sort of secular headwinds in any 1 industry like automotive or QSR or something like that. Marketplace is providing us with that diversity and helping us spread out the ad revenue across a much larger base of advertisers and help us grow in a more stable fashion.

One thing that you mentioned in the very beginning comments were just the opportunities in TV, and you've made 2 acquisitions, I think they will start backwards, if that's okay. We'll start with the buyback decision for the first. So you just announced that you completed the acquisition of Vibe on August 4, and it's a self-service streaming TV advertising platform. How does this platform complement the business you just kind of walked through? And how do you expect the acquisition to impact your CTV.

Yes. We're excited about the Vibe acquisition. It closed just 6 or so weeks ago. If we look at the advertising channels that small businesses, particularly local small businesses had 25 years ago, it was the local variations of print and radio and TV. And then the search and social platforms came along and did a great job of rolling up that SMB demand, those dollars. We see an opportunity to bring the small advertiser, the local advertiser back into TV. I actually think that as TV has grown over the last 10 or so years, the barriers to entry have actually gotten higher as the broadcasters focus more on larger and larger advertisers, knowing that they lost most of that small business share to the digital ad platforms. And I think the DSPs that have facilitated the migration of budgets from linear to CTV have also focused on the large advertiser use case. We see a big opportunity in smaller advertisers, Vibe as great as that. What they've done is built a campaign management experience that would be familiar to a small advertiser that works with a search or social platform. easy campaigns set a goal-based orientation, automated optimization, clear measurement. And so we think that, that's a winning formula for bringing smaller advertisers back to TV. We see that their models, their optimization model in its own right is very strong. We're excited to see what they can do when they train their optimization model on Walmart data. We're excited to introduce third-party sellers that have never bought CTV to buy. That will be incremental demand for them, and we're excited to aim Vibes demand at Vizio supply. Vivad really started acquiring supply directly from broadcasters -- more recently, they've gotten around to integrating with the devices themselves. They hadn't gotten to VIZIO just yet or they had right before the acquisition. And so we'll get that up and running and vibe demand will run on Basiosupply. That will be incremental demand for the VIZIO business. So there's a lot of ways that buy plugs into Walmart Connect.

Yes. Yes. And so then again, I wasn't sure Vive should come first or VIZIO, but that does dovetail into just backing into what VIZIO is and that acquisition that you made 1.5 years ago now, CTV, but just what are the capabilities, what milestones have you reached that and it's still to come?

Well, from an advertising perspective, I think the first order of business after we closed the acquisition was enable Walmart audience targeting and measurement on VIZIO inventory. And so we did that last year. This year is the first full year. We're offering that to Walmart Connect advertisers. The uptake has been really strong, particularly across big CPG advertisers who were not VIZIO's biggest advertisers before the acquisition. So we're happy with that. We're happy with the ROI that VIZIO inventory is delivering with our data as well as the ease of use or the ease of buying visoinventory with Walmart data? What we're really focused on right now is driving reach and TV reach equals revenue. And we're driving reach for VIZIO by assorting more VIZIO TVs, but also by putting the VIZIO smart TV operating system on our private label TV is the ON brand. And the combination of those things has made the VIZIO OS, the #1 smart TV operating system in the U.S. in the first half of this year. And so that's really going to help the big brands that we work with, derive more value from VIZIO when they reach more and more U.S. households and then we can overlay Walmart data on that.

And then other partnerships that you've announced recently include Ignite, which you mentioned before, enabling Yahoo! DSP advertisers to activate campaigns on the VIZIO inventory, your recent deal with Google, targeting Walmart shoppers on YouTube. So what was your thought process behind the partnering with the external DSPs. And again, I think this is all about evolution and what we can see over time. So what could that look like over time?

Yes. I might separate the YouTube piece from the DSP, SSP work we did. I think that Vizio has always been easy to buy in so far as you could use any DSP to buy Visio inventory. The question is, how do we maintain VIZIO's ease of access while also making Walmart data available on VIZIO inventory. And we chose Magnite and Magnit is the ad server for VIZIO, and it's a top SSP partner of theirs. We chose Magnit as sort of the central place where we will integrate Walmart connect audiences and measurement capabilities, we'll have our data there. And so we can maintain control while also allowing Yahoo! -- and soon TV360 to apply our data to Zeo inventory. Large advertisers have a lot of strong feelings about which DSP they want to use or should be used to buy CTV. So we need to work with multiple large DSPs to maximize the VIZIO opportunity. So that rationalizes the work with Yahoo! -- and Magnite. I think with YouTube, we want to be where Walmart customers are spending their time, where are they engaged across the Internet outside of a shopping environment. we've already established partnerships with Meta and TikTok, YouTube is a place that consumes a ton of online engagement. So we've done a partnership with them where we're in a beta stage right now with advertisers. You can use Walmart data to target and measure campaigns on YouTube. And that's really about going out and finding Walmart customers where they're spending their time and allowing brands to do better targeting and measurement in those places, which is a much larger opportunity for us than solely focusing on monetizing owned and operated inventory.

I guess just as a follow-up question to that then. I mean it's really just now if you're just in the beta stage, especially with the YouTube, DSP, I mean it's just about figuring that out over time.