Walmart Lost $80 Billion in a Day. The Story Behind Its Ad Business Is the Real Trade
(SeaPRwire) – By: Robert Kensington
When a stock evaporates $80 billion in a single session, most traders see the end of the story. They sell. They look elsewhere. But Walmart’s Q2 report isn’t a failure waiting to be acknowledged. It’s a narrative being traded at the wrong frequency. The headline comp number is real. The advertising business growing behind it is realer. Here is where the disconnect sits, and why it matters more than any analyst note you will read this week.
The official facts are straightforward enough to recite from a briefing document. Q2 U.S. comparable sales landed at 2.6%. The Street had penciled in 3.8%. That gap alone triggered a 9.2% single-day plunge, wiping out more than $80 billion in market cap. The stock opened at $102.63 on Friday, down from a 52-week high of $135.15. It has shed roughly one-fifth of its value since May highs. Q3 EPS guidance of $0.62 to $0.64 came in below the $0.68 consensus. Two earnings reports did the damage. Q1 in May showed strong revenue, up 7.3% year-over-year, but EPS guidance missed, and the stock dropped about 7% that day. The stock briefly crossed the $1 trillion market cap mark. It now sits around $816 billion. Regulatory changes to drug pricing created a drag on the health and wellness category. Strip that out, and comps were closer to 3.4%. Still a miss. But not the freefall the headline implied. The question is whether the comp number is the story or whether it is the noise.
Now look at what the advertising line item actually did. Total advertising revenue grew 38% year-over-year. Walmart Connect grew 43%. Analysts estimate gross margins on the advertising business are close to 70%. Advertising and membership fees combined now account for roughly one-third of Walmart’s operating income. And these lines represent only a fraction of total revenue. Meanwhile, global e-commerce grew 23% year-over-year. U.S. e-commerce was up 24%. Marketplace sales jumped 52%. Membership fee revenue rose 17%. Store-fulfilled delivery grew 43%. Q2 EPS came in at $0.81, beating the $0.74 consensus estimate. Revenue hit $187.94 billion, above the $186.64 billion expected, up 5.9% year-over-year. Return on equity was 21.83%. The Walmart Connect model is not complicated. Brands pay to have their products surface when shoppers search on Walmart’s platform. A single customer generates retail revenue at checkout and advertising revenue from the brand that paid to reach them. Two revenue streams from one transaction. That is a dual-monetization loop most retailers cannot replicate. And it is compounding at a rate that makes the comp sales miss look less consequential than the headline suggested.
The valuation picture tells a third story. At around 36x forward earnings, WMT trades well above the sector average of 15x and above its own five-year average of around 30x. Before Q1 earnings, the multiple was 46x. Before Q2, it was 38x. Two rounds of multiple compression have already taken some of the pressure off. Of 32 analysts covering WMT, 29 rate it a Buy. The average price target sits at $129.57, implying around 26% upside from current levels. Jefferies reaffirmed a Buy with a $120 target. Guggenheim and Mizuho both set $130 targets. On the insider front, EVP Daniel Danker sold 50,644 shares on August 26 at an average of $105.35, executed under a pre-arranged 10b5-1 plan to cover tax obligations related to vesting equity awards. The market read that as a signal. It is not. That is a tax event. The real question is whether the Street will finally price Walmart’s advertising engine into the multiple or keep treating it as a retail stock with a digital footnote. The comp miss will be remembered as a distraction. The advertising growth will be remembered as the actual business.
Author bio: Robert Kensington, an overseas entrepreneurial veteran with decades of experience in real-economy industrial investment and expansion.