Four Things the Market Keeps Getting Wrong About Costco

Costco's membership fees generated approximately $5.0 billion in 2025. That revenue flows directly to the bottom line at nearly 100% margin. It is recurring, predictable, and growing at 7-8% annually as Costco adds warehouses and raises membership fees every five to six years.

Here is the part the market consistently undervalues: membership renewal rates sit above 92% globally and above 94% in the US and Canada. Historically, a 92%+ renewal rate on a paid subscription is world-class — comparable to enterprise SaaS businesses that trade at 15-25x revenue. Costco's membership revenue alone, valued at a modest 20x multiple, is worth $100 billion. The entire company trades at $450 billion. The rest of the business — $275 billion in retail revenue — is essentially being valued at $350 billion, or 1.3x revenue. That is cheaper than Walmart.

The 3% profit margin is not a sign of competitive weakness. It is a deliberate capital allocation decision. Costco chooses to pass savings to members rather than maximise short-term margins. This creates a reinforcing flywheel: lower prices drive higher member loyalty, higher loyalty drives membership growth, membership growth funds warehouse expansion, and expansion drives purchasing scale that enables even lower prices.

Amazon understood this logic and built a $2 trillion company on it. Costco has been executing the same playbook since 1983 — with the critical difference that its physical warehouse model creates barriers to entry that digital competitors cannot replicate. You cannot Costco on the internet. The treasure-hunt shopping experience, the $1.50 hot dog, the Kirkland Signature brand loyalty — these are physical-world moats.

Costco's regular dividend yield of 0.52% looks pathetic. But the company periodically issues special dividends — typically $10-15 per share — that dramatically change the total return picture. Over the past decade, Costco has returned over $25 billion through special and regular dividends combined. This irregular distribution schedule is optimal from a capital allocation perspective: management retains cash when investment opportunities exist and returns it in bulk when the balance sheet builds excess capital.

The FCF profile supports continued special dividends. At $7.8 billion in annual free cash flow and modest capex requirements for new warehouses, Costco generates roughly $4-5 billion in excess cash annually above regular dividends and maintenance needs. Another special dividend in the next twelve to eighteen months is highly probable.

Costco operates 897 warehouses globally, with roughly 600 in the US and Canada. International markets — Japan, South Korea, Australia, the UK, and increasingly China — represent the growth frontier. Each new international warehouse generates $200-250 million in annual revenue at maturity and $5-7 million in annual membership fees.

The addressable market for Costco's model internationally is enormous. Japan alone has potential for 50+ additional locations beyond the current 33. Australia could support 20+. China is the largest long-term prize — the middle class growth trajectory supports hundreds of potential locations over the next two decades. At the current pace of 25-30 new warehouse openings per year, Costco has a decade of visible growth runway before the model begins to mature internationally.

We have been wrong before on retail international expansion — Walmart's retreat from the UK comes to mind. But Costco's model translates better across cultures because it sells value rather than convenience. The membership psychology works everywhere.