Five Things the Market Is Missing About Walmart

Walmart Connect — the company's retail media network — grew over 30% in fiscal 2025 and now generates an estimated $4-5 billion in annual revenue. This is nearly pure profit. Advertising gross margins run at 70-80%, compared to 24% for the core retail business.

Retail media is the fastest-growing advertising channel in the world, and Walmart has the second-largest first-party shopper dataset after Amazon. Every time a CPG brand pays to promote its product on Walmart's app or in-store digital screens, it's pure margin accretion. At $4-5 billion, Walmart Connect is already larger than many standalone ad tech companies. At 40% growth, it's on track to hit $8-10 billion within three years.

The market values Walmart at 0.9x sales — a retail multiple. But a growing chunk of those sales carry software-like margins. The blended multiple should be higher.

Walmart+ membership has quietly grown to an estimated 25-30 million subscribers. At $98/year, that's $2.5-3 billion in recurring, high-margin revenue. More importantly, Walmart+ members spend 2-3x more than non-members, creating a virtuous cycle that drives both top-line growth and customer lifetime value.

Amazon Prime has 200 million members and contributes an estimated $40 billion annually. Walmart+ at 25 million is at the beginning of the adoption S-curve. If penetration reaches even 50 million — still a fraction of Walmart's 240 million weekly shoppers — the membership revenue alone justifies a $30-40 billion enterprise value attribution.

Walmart's international segment — particularly India (Flipkart), Mexico (Walmex), and China — has been a drag for years. That's changing. Flipkart's GMV is approaching profitability, Walmex continues to take share in Mexico's retail market, and the China Sam's Club expansion is producing same-store sales growth north of 10%.

International represented roughly 19% of revenue in FY2025 and is growing faster than the US business. As these operations mature and reach consistent profitability, the segment goes from value destroyer to value creator — a transition the market hasn't fully priced in.

Walmart spent $16 billion in capex last fiscal year. A large portion went into supply chain automation — automated fulfilment centres, delivery infrastructure, and last-mile technology. The company now offers same-day delivery from over 4,700 US stores, covering 90%+ of the population.

This infrastructure investment creates a compounding cost advantage. Each automated fulfilment centre reduces per-order handling costs by 20-30%. Over time, this widens the cost gap versus smaller retailers who can't justify similar investments. It's the retail equivalent of Amazon's AWS infrastructure advantage — a fixed-cost moat that gets wider every year.

Walmart raised its dividend by 13% this year — the largest increase in over a decade. The company has now increased its dividend for 52 consecutive years. Management also authorised $20 billion in share buybacks, funded entirely from operating cash flow.

Free cash flow of $12.7 billion in FY2025 comfortably covers both the dividend ($6.2 billion) and buyback programme. The payout ratio of roughly 49% leaves room for continued increases. For a company trading at 38x earnings, the 1.1% yield looks thin — but the yield on cost for long-term holders has been compounding at 8-10% annually.