Walmart's earnings and the great retail convergence

Walmart reported earnings this morning that beat estimates, driven in part by comparable sales growth of 5.6% for the fourth quarter, but it also noted that its ad services business generated some $2.1 billion in sales.

Why it matters: It wasn't all that long ago industry insiders were predicting the demise of Walmart, but it can now go toe-to-toe with Amazon after heavily investing in e-commerce and diversifying into services from advertising to health to financial.

Of note: Amazon's distribution system, after all, was built in the late 1990s by chief logistics officer Jimmy Wright, a former Walmart executive.

Flashback: The legacy discounter, once an unstoppable juggernaut vilified for destroying locally owned businesses in small towns across the U.S., found itself facing obsolescence — every retailer's dread.

• But Walmart woke up one day, picked up a newspaper and read about something called the internet.
• Luckily, it wasn't too late, and the big box giant began plowing billions of its cash flow into its digital transformation.
• A large portion of that cash went to acquisitions, from Jet.com for $3 billion in 2016 to India's Flipkart for $16 billion in 2018.

The latest: Today, Walmart and Amazon are slugging it out, with Amazon opening physical stores to make shopping more convenient for its customers, while Walmart is offering high-margin services online. In hindsight, it feels like the convergence of Walmart and Amazon (and of physical and online retail) was always destined.

Between the lines: Walmart's more recent purchases show it's shifting to services and platforms, buying telehealth provider MeMD and ad tech solution Thunder.

Richard Collings writes the Axios Pro Retail deals newsletter. Start your free trial at AxiosPro.com.