Operating income grew 41% while revenue grew 5%. Walmart Connect, the third-party marketplace, and Walmart+ are transforming a low-margin grocer into a high-margin platform — and the data shows it clearly.
Walmart has re-rated from 20x forward earnings to 34x over the past three years. The stock has outperformed the S&P 500, Amazon, and every other retailer in the large-cap universe. One chart explains why: operating income growth has decoupled from revenue growth, and the gap is widening. Walmart is no longer a low-margin grocery company. It is becoming a high-margin advertising and marketplace platform that happens to sell groceries.
Walmart's 5.1% revenue growth in FY2025 is solid for a $680 billion company but won't get anyone excited. What's happening beneath the headline is far more interesting. Walmart Connect — the advertising business — grew 28% to an estimated $4.5 billion. The third-party marketplace grew 35%, adding high-margin commissions. Walmart+ membership revenue, while undisclosed, is growing at double-digit rates with near-100% gross margins.
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Walmart's operating margin expanded from 3.4% in FY2023 to 4.3% in FY2025. That 90 basis point improvement might seem small, but on $680 billion in revenue, it represents $6.1 billion in incremental operating income. The margin expansion is driven entirely by the high-margin revenue streams — advertising at 70%+ margins, marketplace commissions at 80%+ margins, and membership fees at near-100% margins.
Amazon's advertising business generates roughly $69 billion at 60%+ margins. Walmart Connect is at $4.5 billion — early innings by any measure. If Walmart can grow Connect to $10-12 billion by 2028 (a 26% CAGR, below the current growth rate), the advertising business alone would contribute $7-8 billion to operating income. That is equivalent to the entire operating profit Walmart generated in FY2022.
Management deployed AI-driven personalisation across Walmart.com and the in-store experience in FY2025, driving higher ad conversion rates and justifying CPM increases. We've seen this flywheel before at Amazon: more customers → more data → better targeting → higher ad revenue → higher margins. Walmart has 240 million weekly customers. The data asset is massive.
Every chart in this analysis confirms the same thesis: Walmart is undergoing a structural margin expansion driven by high-margin revenue streams that the market is only beginning to appreciate. At 34x forward earnings, the stock is not cheap — but it's cheaper than it looks if operating margins reach 5.5-6% by 2028 (driven by Walmart Connect reaching $10B+ and marketplace taking 8-10% of GMV).
On that trajectory, operating income reaches $40-45 billion, supporting a $700+ billion market cap. Walmart trades at $590 billion today. We're buyers with a 12-month target of $110, and the data says the margin expansion story has years left to run.
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A $5 billion ad business growing 30%, a membership programme with 25 million subscribers, international operations that finally work, and 52 years of consecutive dividend increases.
Walmart's operating margin expanded from 3.9% to 4.5% while revenue grew to $674 billion. The data tells a story of a retailer transforming into something more valuable.
Costco's membership model is exceptional. At 51.8x trailing earnings — the most expensive large-cap retailer on earth — the capital allocation math no longer works, even for a company this good.