Walmart targets wealthier shoppers as ad revenue hits $6 billion

Walmart is reshaping its business model to attract higher-income shoppers, using its fast-growing advertising and membership businesses to fund the pivot.

Walmart's advertising business generated $6 billion in revenue over the past year as the retailer shifts strategy to court higher-income shoppers.

"Advertisements are good for our customers. They're good for our seller community. They help avail customers and members to new products or things that they didn't know were available for sale at Walmart," Seth Dallaire, chief growth officer at Walmart, said at the Evercore Retail and Consumer Conference.

Advertising revenue grew 36% in Walmart U.S. during the first quarter, while membership fee revenue rose 17% for the enterprise. Together, these profit streams represented about one-third of operating income, Chief Executive Officer John Furner said on the company's earnings call.

The strategy positions Walmart to compete more directly with Amazon and Costco for higher-spending customers. BofA Securities has a $140 price target on the stock, which trades at 36 times forward earnings, and cited Walmart's ability to tap into high-margin businesses like advertising and membership to fund pricing investments.

Vizio acquisition opens the living room

Walmart's push into connected TV advertising through its Vizio acquisition about 18 months ago has been central to the strategy. The television hardware business now serves as a gateway to advertising, with the operating system behind the screen enabling targeted ad placements in consumers' living rooms, Dallaire said.

The retailer's advertising business has grown to more than $6 billion in annual revenue, according to Dallaire. Global advertising was up 37% in the first quarter, with strength across segments.

"For decades, the store was treated purely as a sales channel. But it's actually a high-quality media environment with massive audiences, contextual relevance, and proximity to the point of purchase," Andrew Lipsman, an independent retail analyst, said at Beet Retreat LA.

Stock outperforms as margins improve

Walmart shares have outperformed the Zacks Retail-Supermarkets industry over the past year, gaining 17% compared with 12.9% for the sector. The company's store network supports fast fulfillment, convenient pickup and delivery, and stronger digital engagement, according to Zacks Equity Research.

BofA analysts said Walmart's competitive advantages include best-in-class delivery speeds and the ability to invest in pricing through its higher-margin advertising and membership revenue streams. The firm expects Walmart to accelerate share gains by leading with price and speed.

The shift toward wealthier shoppers comes as Walmart expands its omnichannel operations. Marketplace, advertising and membership are becoming more important profit drivers, helping diversify earnings beyond traditional retail and improve the business mix, according to Zacks.

"This advertising business and retail media is a critical component to how we serve customers and members and also to the P&L," Dallaire said.

The strategy shows Walmart evolving from a low-price retailer into a diversified commerce platform with multiple profit streams. Investors will watch the next quarterly earnings report for continued momentum in advertising and membership growth.

This article is for informational purposes only and does not constitute investment advice.