Electronics retailer Best Buy Co. Inc. (NYSE: BBY | BBY Price Prediction) announced mediocre earnings and gave an even more mediocre forecast. It was one more example of how Amazon.com Inc. (NASDAQ: AMZN) has battered Best Buy and will continue to do so. (These companies have the worst reputations.)
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The first piece of evidence about Best Buy’s trouble is its stock price over five years compared to Amazon’s. Amazon is up 53% over the period, and the broader market is up 32%. Best Buy has dropped 3%. Best Buy’s market cap is $17 billion, while Amazon’s is $1.4 trillion.
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The gulf between the two companies should not be so large. Best Buy’s revenue was $9.6 billion in the most recent quarter. Net income was $274 million. In Amazon’s most recent quarter, North American revenue was $82.5 billion, with an operating income of $3.2 billion. Granted, Amazon has the highly profitable and industry-leading AWS cloud business, but that is not enough to make up for the market cap spread.
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The difference between the two companies remains that Best Buy is a legacy brick-and-mortar retailer. It has stores, store costs and costs for people who work in its stores. E-commerce is not part of its success, nor has it ever been. The company will be shackled to this model permanently.
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Best Buy also offered caution for the months ahead. It expects revenue to decline 7.1% on comparable sales that will fall 6.3%. Amazon will do better.
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