Walmart Q3: IPO-bound PhonePe's ESOP revaluation wipes $700 mn off international operating income

Walmart Q3

Retail major Walmart reported a sharp hit to its September-quarter international profitability after booking a non-cash share-based compensation charge of about $700 million linked to PhonePe, its India-based digital payments and fintech subsidiary preparing for an IPO.

The revaluation of PhonePe’s ESOPs, driven by a rise in the subsidiary’s implied valuation, was the single-largest factor behind the quarterly decline.

“Our third quarter GAAP results include a charge of approximately $700 million related to our PhonePe subsidiary in India. This was a discrete non-cash charge related to a share based compensation expense in contemplation of a potential IPO,” Walmart CFO John David Rainey told analysts during the company's earnings call.

The charge pulled Walmart’s international operating income down 41.7 percent, from $1.2 billion a year ago to $700 million. On a constant-currency basis, operating income declined 46.3 percent to about $600 million. Walmart emphasised that the impact is entirely non-cash, reflecting a fair-value adjustment rather than any payout.

How is PhonePe progressing towards its IPO?

Crucially, this comes months after PhonePe reportedly launched an ESOP buyback programme worth up to Rs 700 crore–Rs 800 crore in the lead-up to its IPO. The fintech major, majority-owned by Walmart, has filed draft papers via the confidential pre-filing route and is looking to raise around Rs 12,000 crore ($1.35 billion) through a pure Offer for Sale (OFS).

Shareholders expected to participate include Walmart, Tiger Global, and Microsoft, with a combined dilution of around 10 percent.

How did Walmart’s international business perform despite the charge?

Despite the profit compression, the underlying performance of the international business remained strong. Net sales rose 10.8 percent to $33.5 billion, supported by growth across Flipkart, China, and Walmex.

On a constant-currency basis, net sales increased 11.4 percent to $33.7 billion. E-commerce momentum remained robust, with sales rising 26 percent, led by marketplace expansion and store-fulfilled pickup and delivery. Advertising revenue also grew sharply, helped in part by Flipkart’s expansion.

What role did Flipkart’s Big Billion Days timing play?

Walmart noted that the timing shift of Flipkart’s Big Billion Days boosted sales in Q3, though it will weigh on Q4 comparables.

Even with the distortion, adjusted operating income for the international segment grew 16.9 percent to $1.4 billion, supported by lower e-commerce losses and broad-based operating leverage.

How were consolidated metrics and EPS affected?

At the consolidated level, Walmart said operating income decreased 0.2 percent, primarily due to the PhonePe charge, while adjusted operating income rose 8 percent on a constant-currency basis.

Adjusted EPS of $0.62 reflects the exclusion of certain gains and settlements and incorporates $0.07 of incremental share-based compensation tied to PhonePe.

Profitability metrics were also affected, with ROA at 8.4 percent and ROI at 14.8 percent, both reduced by roughly 30 basis points, including 25 basis points from the PhonePe ESOP adjustment.

Why does PhonePe matter so much to Walmart’s numbers now?

The $700-million charge underscores the growing weight of Walmart’s India portfolio — particularly PhonePe and Flipkart — in shaping quarterly earnings volatility as well as long-term value accretion. While the revaluation introduces short-term volatility, it also signals the rising market value of PhonePe as it moves toward a public listing.

Flipkart, meanwhile, continues to drive sales, digital adoption and advertising growth across Walmart’s international operations.

Walmart nevertheless raised its full-year FY26 sales and operating income guidance, indicating confidence in its underlying performance despite the accounting drag from the PhonePe adjustment.