Walmart Inc. (WMT.US) Membership Business Has "Low Overlap, High Potential"! Morgan Stanley: Bundled Sales Could Unlock New Spending

Morgan Stanley noted in a research report released recently that the membership bases of Walmart Inc. (WMT.US)'s Walmart+ and Sam's Club have limited overlap, which creates a huge opportunity through membership bundling and is expected to increase total spending per member over time. The October survey results showed that about 26% of respondents have Walmart+ membership, about 31% have Sam's Club Net membership, of which about 12% hold both memberships, and about 55% hold neither. Opportunity to increase spending per member through membership bundling Morgan Stanley's membership survey showed that among Walmart+ members, about 45% also have Sam's Club Net membership, of which about 30% have regular Sam's Club membership and about 15% have Sam's Plus membership. Conversely, among Sam's Club Net members, about 38% also have Walmart+ membership, with this ratio at about 35% for regular Sam's Club members and about 46% for Sam's Plus members. Overall, the October survey results showed that about 26% of respondents have Walmart+ membership, about 31% have Sam's Club Net membership, of which about 22% have regular Sam's Club membership and about 8% have Sam's Plus membership. Therefore, the data indicate that there is a certain degree of overlap between the two membership groups, but they are not fully overlapping. Morgan Stanley conducted a more detailed analysis of the potential opportunity in the membership business. About 55% of respondents said they have neither Walmart+ membership nor regular Sam's Club or Plus membership; about 12% hold both types of membership. In addition, about 14% have only Walmart+ membership, about 14% have only regular Sam's Club membership, and about 5% have only Sam's Plus membership. The relatively high share of respondents without any membership means that Walmart Inc. has broad room to acquire new members; meanwhile, the group holding only one type of membership is a natural target for cross-selling. Cross-selling opportunity Morgan Stanley's survey showed that about 55% of respondents who have neither Walmart+ membership nor Sam's Club membership provide a large potential customer base for acquiring new members; at the same time, about 14% of respondents who have only Walmart+ membership and about 19% who have only regular Sam's Club or Plus membership are natural targets for driving cross-brand membership conversion. Meanwhile, the survey showed that about 12% of respondents already hold both types of membership, indicating that a considerable number of households already hold both memberships. Although management previously said that the overlap between the Walmart+ and Sam's Club membership groups is low, the bank's survey showed that about 38% of Sam's Club Net members also have Walmart+ membership, with this ratio at about 35% for regular Sam's Club members and about 46% for Sam's Plus members. Therefore, Morgan Stanley views the survey results as a preliminary assessment of the potential opportunity and will further evaluate consumer awareness of membership bundle offers in subsequent surveys. Overall, these survey results further reinforce the value proposition of Walmart Inc.'s integrated membership business. A note on the survey results. Morgan Stanley's discussions with management indicated that the overlap between the Walmart+ and Sam's Club membership groups is very low. This further supports the bank's view that bundling the two membership programs could serve as a potential catalyst for driving cross-selling and increasing spending per member. Since this is the first time Morgan Stanley has included questions about membership overlap in its regular survey, the bank still needs to wait for subsequent rounds of survey results to further refine the relevant data and apply any adjustment factors that may be needed. In terms of rating, Morgan Stanley has an "Overweight" rating on Walmart Inc. with a price target of US$125. This price target corresponds to a blended price-to-earnings (P/E) ratio of about 36.8x the bank's FY2029 earnings per share (EPS) forecast of US$3.39, or an enterprise value multiple (EV/EBITDA) of about 18x the bank's FY2029 EBITDA forecast of about US$56.5 billion. The 36.8x P/E ratio is above Walmart Inc.'s historical average of 21x over the past 10 years. However, Morgan Stanley believes this valuation premium is justified because Walmart Inc. has completed its transformation: from a brick-and-mortar retailer that was gradually losing its competitive edge due to the rise of Amazon.com, Inc. into a company capable of disrupting the e-commerce and supply chain industries.