Walmart Q4 Delivers Operating Leverage with E-commerce and Advertising Surge

What happened

Walmart reported fourth-quarter revenue growth of 5.6%, with operating income rising 10.8%, indicating profitability is outpacing sales for now. The results were driven by a 24% jump in global eCommerce and a 37% surge in advertising revenue, including a 41% increase in Walmart Connect U.S., aligning with the DeepValue report's focus on high-margin digital adjacencies. However, the report's caution about operating expenses—highlighted in filings as rising due to items like self-insured liabilities and PhonePe compensation—remains a critical watchpoint despite the gross margin improvement. This quarter provides initial evidence that automation and store-fulfilled models may be reducing cost-to-serve, but sustained execution is needed to avoid margin dilution from expedited delivery growth. Overall, the data supports a step toward the operating leverage required by the 'WAIT' rating, yet valuation at elevated multiples leaves little room for missteps.

Implication

The outperformance in operating income relative to revenue growth validates part of the bullish narrative around Walmart's omnichannel platform, potentially supporting a rerating if sustained. Advertising and eCommerce growth bolster the high-margin flywheel thesis, but filings obscure standalone economics, raising transparency concerns. With a P/E of 46.5, the stock prices in perfect execution, making any slip in cost management or transaction-led comps a catalyst for downside. Near-term risks include rising operating expenses and competitive pressures in retail media, which could erode margins despite top-line strength. Thus, while this quarter reduces immediate bear-case probabilities, patience for another quarter of confirmation is prudent to assess durability beyond index-flow support and CEO transition effects.

Thesis delta

The Q4 results show adjusted operating income growth exceeding sales growth, meeting a key condition from the DeepValue report for upgrading the 'WAIT' rating. If this pattern persists and U.S. transactions remain positive, the thesis could shift towards a more constructive view, but one quarter is insufficient to confirm durable leverage amid ongoing investment headwinds.