In January, Walmart (NYSE: WMT) caught many investors' attention when it announced plans to split its stock. Although the company has conducted multiple stock splits in the past, its most recent was nearly 25 years ago.
However, Walmart's biggest news of 2024 so far has nothing to do with its 3-for-1-stock split. The company's most momentous announcement offers an opportunity to boost the giant retailer's fastest-growing business.
What is Walmart's fastest-growing business?
Before we get to that major announcement, let's take a quick look at Walmart's fastest-growing business. It isn't the company's brick-and-mortar retail stores. Walmart's stores still generate the lion's share of total revenue. However, this part of the company's business isn't its top growth driver, whether we're talking about U.S. or international stores. It isn't Sam's Club, either.
What about e-commerce? Nope. To be sure, this is a booming area for Walmart. Global e-commerce sales jumped 23% year over year in the fourth quarter of the company's fiscal 2024. This figure includes 44% international growth.
Walmart's fastest-growing business, though, is...advertising. Overall, the company's advertising revenue soared 33% year over year in Q4. In the U.S., Walmart Connect allows advertisers to reach customers through search, online, and in stores via screens, events, product samples, and more. Outside the U.S., the company's Flipkart and Walmex units generate advertising sales.
Granted, Walmart's advertising revenue only amounts to pocket change for the giant retailer right now. In fiscal 2024, global advertising sales totaled $3.4 billion. That's only around 0.5% of Walmart's total revenue. But there's no other revenue source for the company that's climbing as rapidly.
Walmart's really big news
So, what is Walmart's biggest news of 2024 so far? The company announced plans to acquire Vizio(NYSE: VZIO) in an all-cash deal valued at close to $2.3 billion.
Walmart has sold Vizio's TVs in its discount retail stores for years. However, the company's main goal in buying Vizio is to get its SmartCast Operating System. SmartCast enables users to stream content from multiple sources on devices. And it's a perfect fit with Walmart's advertising business.
In the press release announcing the deal, Seth Dallaire, Walmart U.S. executive vice president and chief revenue officer, stated: "Our media business, Walmart Connect, is helping brands create meaningful connections with millions of customers who shop with us each week." He added, "We believe the combination of these two businesses would be impactful as we redefine the intersection of retail and entertainment."
More than 500 direct advertisers use the SmartCast platform, including many of the biggest companies in the world. Vizio's Platform+ unit, made up primarily of its advertising business, is the main source of the company's gross profit.
Does the Vizio deal make Walmart stock a buy?
I don't think Walmart's acquisition of Vizio provides a compelling reason to rush out and buy the stock. For one thing, the deal hasn't been finalized yet. Regulators must approve the transaction. Vizio can also terminate the agreement within a specified period if it receives a more attractive offer.
However, I expect the transaction will close relatively soon. I view it as a smart business move for Walmart that will indeed increase its advertising revenue.
My main reason for being reluctant to buy Walmart stock right now, though, is valuation. Walmart's shares trade at more than 25 times forward earnings. That's not ridiculously expensive, but it's still a premium price. That said, I like Walmart as a long-term investment. In my view, it's a good stock to buy on a pullback -- especially if or when the Vizio transaction finalizes.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.
