Zaid

You know, selling groceries isn't really a high margin business, but Walmart's operating profits have been growing faster than revenue, which means that Walmart is getting more profitable.

And that's thanks to three main reasons.

First is advertising.

Walmart's ad revenue was up 46% to $6.4 billion in 2025.

Now that might be surprising to a lot of people, but Walmart is sort of becoming an ad company.

As more and more people shop on Walmart's website and app, that allows Walmart to serve more ads.

Every time someone looks up a product on Walmart's app or website, the first two or three results are sponsored.

Brands pay Walmart for that top placement in the search results, and that is a high margin business.

I'm talking like 70% margins.

The growth in the ad business is contributing more to Walmart's operating profits.

Walmart also recently bought

the smart TV maker.

So that will let them run ads directly into people's living rooms and I guess collect all the data that you're watching on TV, which is very creepy, but that's what pretty much every company does at this point.

Now, the second reason for Walmart's improved margins is automation and inventory efficiency.

Walmart is now using AI to better manage inventory.

inventory only increased 2.6% in 2025, which was half the rate of their sales growth.

That means that Walmart is getting better at managing inventory, which helps them save on storage costs.

They're also automating their supply chains and their warehouses to save on labor costs.

So that efficiency is resulting in better margins for Walmart.

And finally, the third driver of higher margins is membership revenue.