I Was Shocked to See How Much This Fast-Growing Business Is Adding to Walmart's Bottom Line

Key Points
Walmart's advertising revenue grew by 46% in fiscal year 2026.
Small -- but highly profitable -- ad dollars already account for a chunk of operating profits.
Continued advertising growth could drive broader earnings higher and support a premium valuation.
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It's no secret that e-commerce has become a crucial aspect of competing in today's retail landscape. Walmart (NASDAQ: WMT) is already the world's largest retailer and, thanks to its size and reach, is also the second-largest online retailer in the United States.
Walmart's e-commerce sales are growing briskly, but that's not what should be getting your attention. Advertising is becoming a major contributor to Walmart's bottom line, and it's time for investors to sit up and take notice.
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Digital ads are quickly becoming a big deal
Walmart primarily generates ad revenue from third-party sellers who pay for placement in search results on Walmart's online marketplace, much like Amazon does, and from VIZIO connected TVs. The numbers don't seem too impressive on the surface. Walmart's global ad revenue was $6.4 billion in its fiscal year 2026. Although it grew by 46%, it's still a sliver of Walmart's total net revenue of $713.2 billion.
But digital ads have very high profit margins because it costs almost nothing to place a search result. It doesn't take much ad revenue to make a difference for a retailer selling goods and merchandise at razor-thin margins, even at Walmart's gargantuan size.
Ad revenue and Walmart+ membership fees combined for approximately one-third of the company's operating profit in the fourth quarter of fiscal year 2026. With that perspective, a 46% increase in ad revenue is a big deal because it could turn advertising into a major profit center for Walmart in just a few years.
Why this could help justify a premium on Walmart stock
Walmart is one of the world's most dominant businesses. Investors typically pay up to own Walmart stock, which has averaged a price-to-earnings ratio of 31 over the past decade. The stock currently trades well above that at around 46 times earnings, so now may not be the time to buy.
That said, investors probably shouldn't count on a bargain anytime soon. Remember, advertising is only just getting started, and it's already making a difference in Walmart's profits. What could earnings growth look like moving forward if advertising grows to become 5% to 10% of total revenue?
Wall Street analysts currently see Walmart growing its earnings by an average of 8.8% over the long term, but there could be some upside to estimates if advertising continues to grow as it has. If shares revert to closer to Walmart's long-term norms, perhaps a P/E ratio in the low 30s, investors may be wise to smash the buy button.
Should you buy stock in Walmart right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.