Quick Summary

Best Buy (BBY) is one of the largest electronics retailers in the U.S. 45% of its sales are from computing and mobile phone products. 30% are from the broader consumer electronics space (TVs, audio devices, connected home, wearables, etc). 14% of sales come from appliances, 7% from entertainment (mainly video games and hardware), and 5% from services. The firm has around 1,200 retail store locations (mostly in the U.S. but a few in Canada and Mexico), and a major online presence that accounts for 25-30% of sales.

Does The Company Have Rising and Recurring Revenues?

NO. Best Buy's 3-year average annual revenue growth is unimpressive at just under 4%. Store count has held steady at right about 1,200 units for the better part of a decade now, so store expansion is not really in play here. Best Buy will attempt to drive modest revenue growth mainly from its e-commerce unit, which grew to close to 40% of sales in 2020 due to the COVID-19 pandemic. Service offerings, primarily healthcare and smart-home related, could also offer some upside. But this is certainly not a growth story, and we don't expect Best Buy to get anywhere close to our 10% threshold for growth. Sales are not recurring, either. Electronics and appliance purchases are transactional sales that are infrequent and can be done at limitless competing retailers both physical and online.

Does The Company Have Durable Competitive Advantages?

NO. Best Buy has good brand awareness and a sizable market share (9% of a massive $450 billion dollar market). But neither of these offers any kind of moat. Electronics retailing is an insanely competitive market. Even at its size, Best Buy trails Amazon significantly, only slightly leads Walmart and is facing increasing competition from direct retail efforts from the brands themselves (Apple, Samsung, HP, etc). Price competition is intense and there are virtually zero customer switching costs. Best Buy has few opportunities to differentiate itself.

GreenDot Rating: RED

Give Best Buy and its management a ton of credit for managing to succeed despite what is a crystal clear RED (unattractive) business. Management has done a great job focusing on operational efficiency, optimizing its lease and real estate footprint, building out a best-in-class multi-channel buying experience (including a robust e-commerce offering), and delivering both substantial share buybacks and dividend increases to shareholders. One advantage the company has is an unbelievably huge industry, leaving a lot of room for success despite cutthroat competition. Great management, though, is never a *durable* competitive advantage - all it takes is one subpar CEO for things to unravel. For that reason, we wouldn't recommend owning the stock for the long term.