Walmart Connect Drives Digital Growth and Profitability
Walmart Inc. WMT is seeing its digital business play an increasingly significant role in its overall financial performance. The company's e-commerce and related commerce solutions are expanding rapidly, with advertising emerging as a key driver of this growth. In the second quarter of fiscal 2027, Walmart's global advertising business surged by 38%, with Walmart U.S. advertising and Walmart Connect growing by 38% and 43% respectively. These gains coincided with a 24% increase in Walmart U.S. e-commerce sales, fueled by store-fulfilled delivery, advertising, and marketplace growth.
The profitability of Walmart's digital operations is also improving. The company's U.S. e-commerce business achieved double-digit incremental margins in the first half of fiscal 2027. This progress was supported by strong advertising and membership revenues, as well as improvements in delivery-network density, fee-based fast deliveries, and automation benefits. Advertising also contributed to a better business mix, primarily through the growth in digital advertising, which helped improve gross profit.
Walmart has been expanding its advertising capabilities, including the acquisition of Vibe, which offers self-service tools and enables advertisers to measure results against shopping behavior. The second quarter's performance indicates that advertising is becoming a more integral part of Walmart's improving digital economics. The 43% growth of Walmart Connect, combined with continued e-commerce expansion, supports the broader shift toward commerce solutions. This progress is crucial for Walmart to sustain the incremental-margin improvement achieved in its U.S. e-commerce business.
Comparing Walmart to its competitors, Costco Wholesale Corporation COST and Target Corporation TGT, Walmart's shares have gained 1.8% over the past year, while the industry remained flat. Costco's shares climbed 1%, and Target surged 71.4% in the same period. From a valuation standpoint, Walmart's forward 12-month price-to-earnings ratio stands at 33.82, higher than the industry’s 30.74. The company is trading at a premium to Target (with a forward 12-month P/E ratio of 15.68) while trading at a discount to Costco (40.03).