Walmart's Digital Dominance and Cash Flow Fortitude Signal a Buy Now

Walmart (WMT) is proving that its retail empire isn't just surviving—it's thriving—in an era defined by inflation, tariffs, and e-commerce disruption. While rivals grapple with slowing sales and margin pressures, Walmart's strategic bets on hybrid retail, high-margin advertising, and relentless cost discipline are fueling a rare combination of growth and profitability. Investors should take note: This is a company primed to reward shareholders for years to come.

The E-Commerce Turnaround: Profitability Finally Arrives

Walmart's U.S. e-commerce business hit a historic milestone in Q1 2025: its first-ever profitable quarter. Sales surged 21% year-over-year, driven by Walmart's unique advantage—leveraging its 4,700 stores as distribution hubs. Today, 75% of U.S. households have access to three-hour delivery, with orders in that timeframe up 91% YoY. This “store-fulfillment” model has slashed delivery costs by 20% per order, turning what was once a money-losing experiment into a profit engine.

Globally, e-commerce sales now account for 18% of Walmart's total revenue, up from 11% in 2020. Categories like groceries and health products are booming, with U.S. comparable store sales rising 4.5% as customers prioritize speed and value. Meanwhile, Sam's Club's e-commerce sales jumped 24%, with club-fulfilled delivery surging over 100%.

The High-Margin Secret Weapon: Walmart Connect's Explosive Growth

While e-commerce gets the headlines, Walmart's advertising business—Walmart Connect—is quietly becoming a cash cow. Q1 results showed a 31% revenue spike in its U.S. ad business, excluding contributions from the Vizio smart TV acquisition. By monetizing its vast customer data and in-house inventory, Walmart is capitalizing on its 100 million weekly U.S. shoppers.

The Vizio deal, which gives Walmart control over connected TV (CTV) advertising, positions it to compete with Alphabet and Meta in digital ad markets. With CTV ad spending projected to hit $30 billion by 2027, Walmart is primed to capture a meaningful slice of that growth. This isn't just a side hustle—it's a $10 billion revenue opportunity in the next five years.

Free Cash Flow: The Fuel for Dividends and Buybacks

Walmart's $12.7 billion in fiscal 2025 free cash flow (FCF) may have dipped slightly from 2024, but it remains a fortress of liquidity. Despite investing heavily in e-commerce infrastructure and store upgrades, the company continues to reward shareholders:

• Dividends: A 13% dividend hike in February 2025 marks the second-largest increase in over a decade, part of a 52-year streak of annual raises.
• Buybacks: Walmart spent $4.5 billion repurchasing shares in 2025, with $12 billion remaining under its $20 billion authorization.

Even with tariffs weighing on margins, Walmart's FCF remains robust enough to fund growth and returns. The key: its $681 billion revenue base acts as a financial buffer, allowing it to absorb costs while others buckle.

Navigating Tariff Headwinds—and Why They Won't Sink Walmart

The U.S. government's 30% tariff on $11 billion of Chinese goods, set to expire in late 2025, poses a risk. CFO John David Rainey warns that further hikes could force price increases. But Walmart's strategy to source 67% of products domestically and its focus on private-label brands (which avoid tariffs) limit exposure. Additionally, its hybrid model—where online orders flow through low-cost stores—ensures pricing power.

Valuation: Still a Bargain in a Volatile Market

At $96.83 per share, Walmart trades at a 15.2x forward P/E ratio—a discount to Amazon (25x) and Costco (22x). Its dividend yield of 1.0% may seem modest, but paired with buybacks and steady FCF growth, it offers a safer bet than high-flying e-commerce peers.

The Bottom Line: A Buy for the Next Decade

Walmart isn't just a retailer—it's a logistical powerhouse with a dual-play model that combines the scale of Amazon with the cost efficiency of a brick-and-mortar giant. Its e-commerce profitability, advertising upside, and fortress balance sheet make it a rare blend of growth and stability.

Historically, a strategy of buying Walmart on positive quarterly earnings announcements—such as e-commerce milestones or FCF growth—and holding for 30 days has delivered an average return of 1.99% since 2020, with a maximum drawdown of -25.88%. This underscores the resilience of Walmart's fundamentals during volatility.

Investors seeking a long-term play with dividends, buybacks, and a moat against inflation should act now. Buy Walmart at these levels—it's a core holding for any portfolio.

Risk Alert: Tariff negotiations and global supply chain disruptions remain risks. However, Walmart's diversified revenue streams and domestic sourcing strategy mitigate these concerns better than most peers.

This analysis is based on publicly available data as of May 26, 2025.