Best Buy Co Inc (BBY) is in the midst of a same-day delivery rollout in 12 of its biggest markets. BBY hopes to persuade lost shoppers to make online purchases at Best Buy versus Amazon.com, Inc.‘s (AMZN) website.
And while online channels have been Best Buy’s biggest growth driver in recent years, and this move certainly appeals to many e-commerce shoppers, it won’t give BBY an edge over AMZN.
In fact, it will probably end up being more irrelevant than not.
Same-Day Delivery Makes No Difference for Best Buy
With Best Buy’s price matching service and easy returns, one would expect that BBY is the preferred e-commerce and electronics retailer in the U.S. Instead, Best Buy is on pace to produce its third consecutive year of annual revenue declines, over a span of time that Amazon’s revenue would have effectively doubled.
So while it may seem that BBY is making moves to be a thriving online and electronics retailer, the fact is that consumers still prefer AMZN to all others.
Unfortunately, same-day deliveries are not going to change Best Buy’s fate all that much. The obvious reason is that Amazon is already offering same-day deliveries in many of the same markets. Best Buy’s same-day delivery option is more of a response to Amazon, not an innovation. Therefore, it is hard to imagine that this move leads to higher than expected sales.
Speaking of which, another reason that same-day delivery is unlikely to impact the top line is because of the big-box presence that BBY has built throughout America. Best Buy claims that 70% of all Americans live within 15 minutes of a Best Buy retail store. In the dozen large cities where BBY is rolling out same-day delivery, my guess is that stores are even closer in proximity to the majority of consumers.
So while some consumers will certainly use the same day delivery option when shopping at Best Buy, the service seems more niche, and will unlikely be all that popular given how easily consumers can visit a BBY store and experience a product before purchasing it.
In other words, this move gives BBY absolutely no advantage up against AMZN, leaving its outlook unchanged.
Is BBY a Good Investment?
With that said, Best Buy is not a bad investment, despite the fact that it might not have much to gain with same-day delivery. This is a company that is expected to produce its third consecutive year of revenue declines this year. However, the losses are narrowing, with revenue expected to decline just 1% to $39.1 billion. In 2017, revenue is actually expected to rise slightly, up less than 1%.
As a result, the worst has come and gone for Best Buy, and with BBY paying an annual dividend yield of 3.5% and the stock trading at only 11x fiscal year 2017 earnings per share, it certainly seems there is great investment value despite the lack of growth. At just 11x forward earnings, and 13x trailing 12-month earnings, Best Buy trades at a significant discount to the rest of the market.
For that reason, coupled with its dividend and the end of its revenue losing era, BBY is a stock to own.
As of this writing, Brian Nichols did not own any of the aforementioned securities.
