Core Insights - Walmart is approaching a $1 trillion valuation, driven by strong sales performance and e-commerce growth [1][7] - The company reported a 27% year-over-year increase in global e-commerce sales in Q3 FY26, indicating robust online growth [6][8] - Walmart's digital advertising segment saw a 53% year-over-year growth in Q3 FY26, suggesting potential for increased profit margins [7][8] E-commerce Growth - Walmart's extensive network of over 10,000 stores facilitates e-commerce growth by serving as distribution centers for same-day deliveries [4][6] - The combination of physical stores and a wide product range enhances Walmart's competitive position against rivals like Amazon [6] Profit Margins and Advertising - Despite traditionally low profit margins in retail, Walmart's net profit margin hovers around 3%, with digital ads expected to improve profitability [7] - The advertising segment, while currently a small part of the business, is poised for growth and could significantly enhance overall profit margins [8]

Core Viewpoint - Walmart has shown strong performance in 2023, with shares up 25%, outpacing both Amazon and the S&P 500, driven by two key catalysts: online advertising and e-commerce growth [1]. Group 1: Online Advertising - Walmart's global ad business grew by 53% year over year in Q3 FY26, indicating significant potential for revenue growth and profit margin enhancement [4]. - Online ads, while not a large part of Walmart's business, are growing rapidly and can improve profit margins compared to the low single-digit margins typical in the retail industry [3]. - The contribution of online ads is reflected in Walmart's 34% year-over-year net income growth, despite only a 6% increase in revenue [6]. Group 2: E-commerce Growth - E-commerce sales have shown strong performance, with a 27% year-over-year growth in Q3 FY26, demonstrating Walmart's ability to compete effectively with Amazon [7]. - Walmart's stores function as logistics hubs, allowing for efficient nationwide delivery and reduced shipping costs, which supports e-commerce growth [7]. - The increase in e-commerce sales is also expected to drive higher ad revenue, mirroring trends seen at Amazon [8]. Group 3: Consumer Spending - The company's performance is closely tied to consumer spending, which needs to remain resilient for continued revenue growth [9]. - Despite potential consumer pullbacks, Walmart's focus on low prices positions it well during economic downturns, allowing it to thrive even in challenging economic conditions [10]. - Recent data from Adobe Analytics indicates a 7.7% year-over-year increase in Cyber Monday sales, suggesting continued consumer spending, which could bode well for Walmart in 2026 [11].

Core Insights - Walmart and Costco have both outperformed the S&P 500 over the past five years, but Walmart is identified as the better long-term investment option today [1][3][10] Company Overview - Walmart operates 10,750 retail stores and 600 Sam's Club locations, while Costco has 914 membership warehouse locations [2] - Both companies leverage their scale to provide affordable prices on essential products, including groceries [2] Financial Performance - Costco achieved 8% year-over-year revenue growth in its fourth quarter, surpassing Walmart's 4.8% growth rate [10] - Walmart's net income increased by 56% year-over-year in the second quarter, significantly higher than Costco's 10.9% improvement [12] - Walmart's advertising business grew by 46% year-over-year in the second quarter, contributing $4.4 billion to its total revenue of $681 billion for fiscal 2024 [6][12] Growth Metrics - Costco reported 5.7% same-store sales growth in Q4 FY25, while Walmart's comparable sales growth was 4.3% year-over-year in the second quarter [8][10] - Costco's e-commerce segment grew by 15.6% compared to the previous year, indicating strong digital sales performance [9] Valuation and Investment Considerations - Walmart has a P/E ratio of 40, compared to Costco's 51, suggesting Walmart is more attractively valued [12] - Despite Costco's higher revenue growth, Walmart's faster profit growth and lower valuation make it a more appealing investment option at this time [11][13]