Shares of Walmart experienced a meteoric rise in 2024, gaining a staggering 72%. This performance marked the company’s best year since 1998 and far outpaced the broader S&P 500 index, which saw an impressive but comparatively modest 23% increase. For shareholders, it’s been a long time since they’ve had a year like this, raising a critical question: What’s fueling Walmart’s exceptional growth?
Digital Expansion: A Core Driver of Profit Growth
One of the clearest explanations for Walmart’s stock surge is its booming operating income, which has significantly outpaced revenue growth over the last two years. CEO Doug McMillon highlighted three main contributors in a recent earnings call: e-commerce, advertising, and membership income. Each of these factors has worked in tandem to transform Walmart’s profitability.
Membership income, primarily from the Walmart+ subscription program, has been a major growth driver. Launched in 2020, Walmart+ has grown rapidly, reportedly surpassing 60 million subscribers by September 2022. If it has maintained its double-digit growth trajectory, it could already be approaching 100 million subscribers today. These memberships not only provide a steady stream of revenue but also incentivize customers to engage with Walmart’s e-commerce services.
The company’s e-commerce strategy further leverages its massive brick-and-mortar footprint, offering customers options to buy online and pick up in-store. This convenience, paired with Walmart+ benefits, has contributed to e-commerce sales growing 27% year-over-year in the third quarter of 2024. But it’s not just direct sales that are benefiting—Walmart has opened its digital platform to third-party sellers, creating a lucrative marketplace that mirrors Amazon’s model.
Moreover, as Walmart’s digital ecosystem grows, so does its advertising potential. Third-party merchants and other brands are eager to tap into Walmart’s vast customer base, driving a 28% increase in advertising revenue in Q3. Together, these elements form a high-margin digital business that has been pivotal in boosting operating income.
Historical Valuation Trends and Future Potential
Given the scale of Walmart’s 2024 performance, some investors might wonder if the stock is now overvalued. Historically, Walmart has traded at an average price-to-earnings (P/E) ratio of 28, roughly in line with the S&P 500’s current valuation. However, Walmart’s current P/E is slightly higher than its historical average, reflecting the market’s optimism about its profit growth potential.
Yet, it’s worth noting that Walmart’s profit growth is indeed outpacing revenue growth. In the third quarter alone, profits grew faster than sales—a trend that could continue into 2025 as the company’s digital ventures mature. Walmart’s ability to sustain or even accelerate its digital growth will be key to justifying its current valuation.
How Sustainable Is This Growth?
While a 72% gain in 2025 seems unlikely, Walmart’s digital momentum suggests there’s still room for growth. The company’s three major profit drivers—e-commerce, advertising, and memberships—are all expanding at impressive rates. Notably:
- E-commerce: 27% growth in Q3, fueled by both direct sales and third-party marketplace activity.
- Advertising: 28% growth, driven by Walmart’s ability to connect brands with its digital shoppers.
- Membership Income: Double-digit growth, with Walmart+ playing a crucial role in customer retention and engagement.
These numbers indicate that the company hasn’t hit a ceiling yet. In fact, with the digital business still in its early stages, there’s a possibility that growth in these areas could hold steady or even accelerate further.
However, challenges remain. Walmart’s success will depend on maintaining the balance between physical and digital operations, staying competitive against Amazon, and continuing to offer value to its growing subscriber base.
Walmart’s Bright Path Ahead
As 2025 unfolds, the key question will be whether Walmart can sustain its profit growth. While a repeat of 2024’s 72% stock gain is unlikely, the company’s strategic focus on digital innovation positions it well for continued success. If its digital initiatives maintain double-digit growth, Walmart could very well outperform the broader market again.
For now, the retail giant’s shareholders have much to celebrate. With its best year in over two decades, Walmart has shown that a blend of innovation, strategic execution, and customer-centric growth can yield remarkable results.
