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Walmart’s transformation into a digital retail powerhouse is driven by narrowing e-commerce losses stemming from economies of scale, catchment area densification, and the ramp-up of high-margin membership and advertising revenue streams

July 1, 2025 //  by Finnovate

Walmart’s transformation into a digital retail powerhouse has reshaped its earnings trajectory, according to a detailed e-commerce “Block” analysis from Morgan Stanley.  The firm highlighted how Walmart has evolved over the past decade “from an old-economy brick-and-mortar retailer being disenfranchised by AMZN” into “an eCommerce, Retail Media and supply chain disruptor.” Morgan Stanley breaks Walmart’s digital evolution into three distinct phases: a “modest growth” stage from 2009 to 2012; a heavy investment phase from 2013 to 2019; and the current era marked by narrowing e-commerce losses and operating margin expansion.  “E-commerce losses have narrowed to the point of near-breakeven,” analysts noted, as economies of scale, catchment area densification, and the ramp-up of high-margin Membership and Advertising revenue streams take hold. According to Morgan Stanley, the eCommerce “Block” includes three synergistic revenue sources: online merchandise sales (1P and 3P), Walmart Connect advertising, and Walmart+ membership fees.  Though online merchandise is still “loss-making,” Morgan Stanley sees “narrowing losses” as scale lowers delivery costs.  Advertising income is estimated at ~3.5% of GMV, with “~70% flow through to Adjusted Operating Income,” and Walmart+ now boasts ~15 million subscribers contributing ~$1.3 billion in revenue for 2024. With these elements working together, Morgan Stanley estimates Walmart’s U.S. e-commerce unit could generate ~$6 billion in incremental adjusted operating income over the next three years, with margins potentially in the “~10% to ~12% range.”  Digital GMV has surged from $59 billion in 2022 to $89 billion in 2024, while ad revenue has increased from $1.9 billion to $3.2 billion over the same period. “Walmart’s digital flywheel supports long-term earnings growth,” Morgan Stanley concluded, forecasting continued strength as high-margin revenue streams outgrow digital sales.

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