Walmart Bets Big on E-Commerce Transformation Amid Full Valuation and Execution Risks

What happened

A recent article contrasts Walmart's aggressive e-commerce push with Costco's steady approach, highlighting Walmart's ongoing transformation. DeepValue's report confirms Walmart's omni-channel flywheel is executing well, with U.S. comps growing 4.6% and e-commerce up 20% in recent quarters. Key growth drivers include retail media expanding ~30% and Vizio integration for connected-TV ads, alongside rapid store-fulfilled delivery improvements. However, valuation looks full at a P/E of ~40 and EV/EBITDA of ~46, suggesting much of the expected margin expansion is already priced in. This strategic bet reinforces management's focus on higher-margin businesses but faces risks from competition and macro uncertainties.

Implication

Walmart's e-commerce bet underscores its growth narrative but does not mitigate valuation concerns, maintaining the HOLD rating from DeepValue's report. Success in retail media growth and Vizio integration is crucial for margin leverage to justify the premium, with any slowdown potentially triggering downgrades. High expectations embedded in the stock price mean U.S. comps and e-commerce must maintain mid-single-digit and ~20% growth, respectively, to support a more constructive stance. While strong free cash flow and low leverage provide resilience, heavy capex plans of $21-25B for FY2026 could pressure near-term returns if not matched by profit gains. Investors should remain cautious, seeking evidence of operating income leverage before considering an upgrade, as the current strategy carries execution risks in a competitive landscape.

Thesis delta

The news of Walmart's e-commerce transformation aligns with the existing strategy in DeepValue's report, which maintains a HOLD rating due to full valuation. No material shift in thesis is warranted unless accelerated retail media growth or comps improvement provides new upside catalysts, but increased investment bets heighten risk if returns fall short.