Operating margin expanded another 40 basis points in Q4 2024, driven by Walmart Connect advertising and marketplace fulfilment. Our prior thesis is validated and upgraded.
Our previous Walmart piece argued that the combination of marketplace growth, advertising scale, and fulfilment efficiency would push group operating margin from 4.1% in 2023 toward 5% by 2027. The trajectory is running ahead of that model. Q4 2024 operating margin reached 4.6% and the exit rate points to roughly 4.8% by mid-2025.
The Capital Desk view: fair value updates higher to $92 from a prior $84 on the accelerated margin trajectory.
Three things moved faster than our prior model assumed.
Walmart Connect advertising revenue crossed $4.4 billion in 2024 with growth of 28% year on year. The prior model assumed 20% growth and a $4 billion exit. The advertising mix contribution to gross margin is now approximately 80 basis points and rising.
Marketplace GMV grew 35% in 2024, pulling Walmart's marketplace toward a mid-teens share of total US e-commerce versus its 2022 low-single-digit share. Take rate expansion has accompanied the growth.
Supply chain automation. Investments in high-throughput automated distribution centres have begun to deliver measurable unit cost reductions. The prior model assumed automation benefits lagging by 6 to 12 months; they are arriving on schedule.
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Walmart Connect is approaching $6 billion of annualised revenue heading into 2026. At the 80%+ gross margin typical of retail media, that is more than $4.5 billion of incremental gross profit relative to 2022.
Compared with Amazon's ad business at roughly $65 billion, Walmart Connect is roughly 7% of the leader. That is the size of the runway. Every point of share taken versus Amazon retail media is worth $650 million of high-margin revenue.
The rate of compounding matters more than the current size. Walmart Connect is growing at roughly three times the rate of Walmart's overall revenue. Each year, the margin mix shifts materially.
Updated assumptions.
Fiscal 2026 EPS: $2.95, up from prior $2.82. The increase reflects higher advertising contribution and faster automation benefit.
Exit operating margin: 5.0% in 2027, up from prior model of 4.8%.
Share count reduction from buybacks: approximately 1% per year.
At an updated 31x multiple reflecting the higher margin profile and the durability of the capital return, fair value is $92. Prior fair value was $84.
Consumer weakness. Walmart is the grocery anchor for a large share of US consumers; a durable slowdown in discretionary hurts apparel and general merchandise mix.
Ad market weakness. A 10% deceleration in retail media growth compresses the margin tailwind.
New risk: marketplace regulation. The FTC's broader focus on platform fee structures could include Walmart's marketplace take rates. The risk is modest but worth flagging.
Updated fair value: $92. The Capital Desk is buyers on any pullback below $72. Conviction on the margin expansion story is higher than in our prior piece, supported by four consecutive quarters of execution above consensus.
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Walmart's e-commerce business turned profitable in 2025 for the first time in a decade. With $713 billion of revenue, $14.9 billion of free cash flow, and operating margin expanding 50 basis points, the case for a 50x multiple is no longer absurd.
Costco trades at 50x forward earnings. Walmart trades at 45x. Both are among the most premium-multiple discount retailers in market history. The capital allocation discipline behind each multiple is different and the investor implications run in opposite directions.
Retail media is the story underneath the retail story. The scale is already there. The margin profile is not priced into a consumer staples multiple.