Walmart Stock Is Transforming Into a Growth Stock. Is It Time to Buy?
When a retailer operates at Walmart’s (NASDAQ: WMT) scale, it takes a lot to move the financial needle meaningfully. But the company’s recent decision to raise membership prices at its Sam’s Club warehouse chain serves as a useful reminder of how its underlying business model is evolving so that it can keep raising the bar despite its massive size. Beginning May 1, the cost of a standard Sam’s Club membership will increase from $50 to $60 annually, while the premium Plus tier will rise from $110 to $120. While a $10 increase might not seem important to the bull case for Walmart stock, it points to a broader strategic transition for the company: Walmart is increasingly relying on higher-margin, faster-growing revenue streams to enhance its growth story. Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue » Image source: The Motley Fool. Evolving growth drivers Sam’s Club membership growth fits neatly into Walmart’s broader push toward higher-margin revenue streams — and it fuels its already-strong growth in membership fees. The company’s membership fee revenue rose about 15% year over year in the company’s fiscal fourth quarter. Then there’s the company’s fast-growing advertising segment. Walmart Connect, the company’s advertising platform, enables brands to pay for premium placement across Walmart’s digital properties and physical stores. Because digital ads carry materially higher margins than consumer packaged goods, this unit’s growth can have an outsize impact on consolidated profitability. In the fiscal fourth quarter, global advertising revenue jumped 37% year over year, while the U.S. Walmart Connect business surged 41%. Additionally, the company is seeing solid momentum in its e-commerce delivery and third-party marketplace operations. Global e-commerce sales surged 24% year over year in the fourth quarter, helping to lift total revenue by 5.6% to $190.7 billion. This ongoing evolution in the company’s sales mix is arguably the primary reason the long-term investment thesis looks so compelling today. “This was the third consecutive year that we grew profits at a faster rate than sales growth,” noted Walmart CEO Doug McMillon during the company’s fiscal fourth-quarter earnings call. Indeed, adjusted operating income jumped 10.5% on a constant-currency basis during the period, easily outpacing the company’s 4.9% constant-currency sales growth.