Walmart’s digital momentum signals long-term profit growth: Morgan Stanley
Investing.com -- Walmart’s transformation into a digital retail powerhouse has reshaped its earnings trajectory, according to a detailed e-commerce “Block” analysis from Morgan Stanley.
In a note to clients this week, the firm highlighted how Walmart (NYSE:WMT) has evolved over the past decade “from an old-economy brick-and-mortar retailer being disenfranchised by AMZN” into “an eCommerce, Retail Media and supply chain disruptor.”
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“E-commerce losses have narrowed to the point of near-breakeven,” analysts noted, as economies of scale, catchment area densification, and the ramp-up of high-margin Membership and Advertising revenue streams take hold.
According to Morgan Stanley, the eCommerce “Block” includes three synergistic revenue sources: online merchandise sales (1P and 3P), Walmart Connect advertising, and Walmart+ membership fees.
Though online merchandise is still “loss-making,” Morgan Stanley sees “narrowing losses” as scale lowers delivery costs.
Advertising income is estimated at ~3.5% of GMV, with “~70% flow through to Adjusted Operating Income,” and Walmart+ now boasts ~15 million subscribers contributing ~$1.3 billion in revenue for 2024.
With these elements working together, Morgan Stanley estimates Walmart’s U.S. e-commerce unit could generate ~$6 billion in incremental adjusted operating income over the next three years, with margins potentially in the “~10% to ~12% range.”
Digital GMV has surged from $59 billion in 2022 to $89 billion in 2024, while ad revenue has increased from $1.9 billion to $3.2 billion over the same period.
“Walmart’s digital flywheel supports long-term earnings growth,” Morgan Stanley concluded, forecasting continued strength as high-margin revenue streams outgrow digital sales.
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