Walmart (WMT) stock rose Tuesday morning after the retail giant reported fourth-quarter earnings that showed a 6% year-over-year quarterly revenue increase. This figure was further supported by a 23% increase in e-commerce sales. Additionally, the company announced that it has entered into a deal to acquire VZIO for $2.5 billion.
TD Cowen Senior Research Analyst Oliver Chen joins Yahoo Finance to discuss Walmart's earnings, the potential deal with Vizio, and how it could impact Walmart's business going forward .
Chen said why Walmart's deal with Vizio means a lot to the company: “There is an opportunity in the market in terms of third-party sales.” [and] There are also huge opportunities in digital advertising. And given that it already has an operating system for the Smartcast system, which has around 18 million members, Vizio Connect will help make this possible and help turn digital advertising into a highly profitable business. Helps accelerate. We modeled a profit margin of over 70%, growing at a 30% pace. So digital advertising is the future for Walmart, and we see this as a technology company as well. That's why this is one of our big ideas. ”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
video transcript
– Walmart's stock price rose in the premarket, and sales rose 6% year over year, helped by a 23% increase in e-commerce sales. The retail giant also announced that it has formally agreed to acquire Vizio in a $2.3 billion deal. TD Cowen Senior Research Analyst Oliver Chen joins us with more. Oliver, it's great to see you here this morning.
First and foremost, if you read this report all the way through, investors will ultimately be satisfied with the results. And ultimately, there will need to be a broader consideration of what this means for consumers. What did you read about consumers from this Walmart earnings report?
– Yes, Brad, we're excited that Walmart is our top idea. It's great to be here with you and Sheena this morning. Consumers are facing a real cross-current. Consumers still have purchasing power, but they are looking for extreme value. Walmart offers it.
At the same time, consumers demand convenience and value their time. This is in large part because Walmart offers a number of convenience features, including drone delivery, curbside pickup, and a marketplace model. All of these things work together in perfect harmony.
– Oliver, one of the big headlines in this report this morning was the fact that Walmart is acquiring Vizio for over $2 billion. From your perspective, obviously from an analyst's perspective, does this make sense? If so, why?
– Yes, we're excited about this. We call it the new Nexus. And when you think about Walmart, there's a market opportunity in terms of third-party sales. There are also huge opportunities in digital advertising. And given that we have an operating system that already has around 18 million members on the SmartCast system, Vizio Connect will help make this possible.
Therefore, this will help accelerate digital advertising, which is a very profitable business. At the time we modeled it had a margin of over 70% and is growing at 30%. So digital advertising is the future for Walmart, and we see this as a technology company as well. That's why it's one of our big ideas.
The other part of this, Sina, is artificial intelligence. To that end, Walmart is already using generative AI and computer vision for more accurate inventory management, as well as generative AI-assisted apps and customer experiences that help employees find products in-store. I am. This is actually happening. They also mentioned drones during the conference call.
Already, 20,000 packages have been delivered by drone. This is his delivery speed of 15 minutes. And rising household incomes, Walmart+, and the entire ecosystem are acting as flywheels to drive sales and profits.
– Do you think this Vizio service should be brought to market? What kind of pricing do you think is needed to strike the right tone among consumers, which we've already seen on the brick-and-mortar side and the e-commerce side, and now on the digital streaming side?
– And we're excited about Walmart+, and it's seeing great momentum. Additionally, rising household incomes are a big part of this story in terms of the demographics that really value the delivery market, similar to many general products. I think Walmart will provide exceptional value and use advertising as a methodology to generate profits and help subsidize some media.
– Oliver, going back to what we were talking about earlier about consumers, what these results tell us about the state of consumers is that while inflation is clearly still very high, the prices of certain items are increasing. We're starting to see that it's starting to go down. Please step back just a little. If this deflationary environment becomes more entrenched, what are the implications for Walmart? And what do you think that will ultimately do to demand here over the long term?
– Yeah, Sheena, that's something we're considering. Quantitatively, from a top-line perspective, what's happening now is disinflation or deflation. It definitely takes away revenue. But consumers are in a tug of war between necessities, needs and wants. Therefore, a positive effect of disinflation is that consumers may have extra dollars at their disposal for general goods. Trends in general merchandise, such as household goods, big-ticket items, seasonal items, and clothing, have been volatile and negative, but given the inflation we've seen so far, it hasn't been all that great.
We therefore expect disinflationary prices to ease as funds are freed up for consumer discretion, where profit margins are generally much higher. That's this tug of war. On the other hand, our country's labor market is tight, the unemployment rate is low at 3.7%, the wage growth rate is 5%, but the inflation rate is still hovering around 3%. And consumers are increasingly using credit cards, reducing liquidity. These are all important factors to look at.
Consumers are definitely looking for value. That's partly evidenced by private label and the momentum we're seeing in private label as well, and the deep value that private label provides. There is also a huge gap between private brands and national brands.
– With that in mind, Oliver, you mentioned Walmart as a technology company, but from your perspective, how does that permeate across multiple companies? So the P/E ratio is currently around 28-29 times.
– Yeah, Brad, I like Walmart's offense and defense. On the one hand, the company is very defensive in that it is the largest grocer in the United States with a large amount of value. On the other hand, it is aggressive from the perspective of the entire flywheel: markets, AI, digital advertising, etc. This entire ecosystem is bound to become increasingly exciting as it works together to drive convenience and competitiveness.
Over the years, we've always loved bricks and clicks. Therefore, physical and digital integration is the secret formula to truly succeed in the long term and manage customer acquisition costs. Being physical is very powerful. 90% of America is within 10 miles of a Walmart. And if you think about Walmart more broadly, healthcare, financial services, pharmacy, all these aspects work together across this flywheel.
– Oliver Chen, always great for gaining insight. Once again, Walmart stock is rising on this report. Oliver, thank you so much for explaining that for us.
– It's wonderful to be with you both. thank you. good morning.
