Jet.com, the fledgling e-commerce site Walmart (NYSE:WMT) acquired in 2016 for $3.3 billion, is being discontinued. Walmart made the announcement in its first-quarter earnings report on Monday.

Back in 2016, the Jet.com acquisition was mostly pooh-poohed by financial observers, and on the surface, it may look like Walmart threw away billions on an upstart website that never reached maturity. However, the reality is that Jet.com and its founder Marc Lore, who now runs Walmart's own e-commerce division, fueled Walmart's own e-commerce growth, making the company No. 2 in e-commerce sales market share, behind only Amazon.

Walmart had also been downplaying Jet for years. In 2018, it shifted much of Jet's marketing budget to Walmart.com, seeing that it got a higher return on investment there; last year it merged what was left of Jet's independent teams in areas like retail, marketing and technology with Walmart's teams. Jetblack, an experiment with a concierge service catering to high-end Manhattan clients, was a money loser, and Walmart pulled the plug on it in February.

The checkout area at a Walmart store

Image source: Walmart.

If there was a time to unwind Jet, now seems like it. In the middle of the pandemic, Walmart is thriving, and its sales are surging both online and in stores thanks to strong demand for groceries since restaurants are still mostly shut down and consumers are in a stockpiling mood. It was never fully clear what Walmart aimed to do with Jet.com. At first, CEO Doug McMillon lauded its "smart basket" tool, which gave customers a discount as they added more items to their online shopping baskets. By absorbing that, Walmart seemed to eliminate Jet's key differentiator. Sales on the platform actually declined from 2016 while it was in Walmart's hands, and Walmart's attempt to turn it into a premium brand targeting urban millennials never really took off.

It's not surprising that Jet.com is going into the dustbin, but it would be a mistake to overlook the tremendous e-commerce strides Walmart has made since it acquired Jet.

An e-commerce powerhouse

When Walmart acquired Jet in 2016, it had seen global e-commerce growth steadily decelerate in the prior years despite the online channel's growing importance. In the first quarter of fiscal 2017, Walmart's global e-commerce sales grew just 7%. Something had to be done, and that something was dropping billions on Jet.com. Since then, Walmart's U.S. e-commerce sales have taken off. By the fourth quarter of that year, its first full period with Jet.com, U.S. e-commerce sales grew 29%, including Jet.com, and they haven't looked back. 

In the three full fiscal years since the Jet acquisition Walmart's e-commerce sales have nearly tripled, jumping 176%. The company has rapidly expanded grocery pickup and delivery and now has about 3,300 stores with grocery pickup and more than 1,850 stores offering grocery delivery, up from just a handful at the time of the Jet acquisition. Under the guidance of Marc Lore, the company rolled out free two-day delivery for orders over $35 without a membership fee to compete with AmazonPrime, and that was accelerated to free one-day delivery last year, shortly after Amazon made the same move in Prime. In the most recent quarter, Walmart expanded ship-from-store capabilities to 2,500 stores, at least temporarily, leveraging the power of its store base, and it launched Express Delivery, promising delivery in two hours. 

Lore has also helped the company greatly expand its online selection, added Pickup Towers to facilitate easier in-store pick up, and made a number of acquisitions of digitally native brands like Bonobos, though Walmart has more recently stepped back from that strategy. Since the Jet.com acquisition, e-commerce has been a priority, and the company has executed on it. Online sales are now one of its biggest growth drivers.

Walmart is still losing money in e-commerce but saw lower losses in U.S. e-commerce from the quarter a year ago, showing it's moving in the right direction. Letting go of Jet.com should help the company further stem those losses -- the start-up was never profitable, and investing in it no longer makes sense. Walmart doesn't expect to take a significant accounting charge for the move, and it said the vast majority of Jet employees were moved within Walmart.

The retailer's e-commerce sales were up 74% in the first quarter, and the company gained operating leverage, a difficult feat that Target, Home Depot, and even Amazon couldn't accomplish in the quarter. That shows that Walmart's e-commerce business is stronger than ever, and the Jet acquisition is a major reason why.