Best Buy’s Mobile Stores Unlikely to Move Stock

About four years ago Best Buy (NYSE:BBY) opened its first Best Buy Mobile specialty store in collaboration with Europe’s Carphone Warehouse. [1]  Today the company continues to open new stores aggressively and also incorporates wireless sales within big-box Best Buy stores.  Overall, Best Buy now holds a 4-5% share of the U.S. mobile phone market, according to TWICE, a consumer electronics newsletter. [2]

Best Buy competes with brick-and-mortar retailers like Wal-Mart (NYSE:WMT) and Costco (NASDAQ:CSCO) in the consumer electronics business, along with online retailers like Amazon (NASDAQ:AMZN)

While we think it makes strategic sense for Best Buy to be in the mobile phone business, we don’t expect the Best Buy Mobile specialty store division to have much impact on the company’s stock price. Our analysis follows below.

Best Buy’s mobile ambitions

Best Buy’s stated goal is to open 1,000 freestanding wireless stores in the U.S. and build its wireless market share to 15%. We expect the total mobile store count to exceed 200 stores by 2016, the end of our forecast period. You can drag the trend-line in the chart below to create your own U.S. mobile stores forecast for Best Buy and see how it impacts the company’s estimated share value.

Best Buy’s wireless store strategy seems sensible given the growing number of mobile network users and accelerating smartphone adoption rates, along with the wide variety of tablet PCs that will hit the market in coming years. Smartphones present a particularly rich revenue opportunity for Best Buy. Compared to regular mobile phone, smartphones generate more revenue in the form of activation fees, service plans and accessory sales.

Stock impact

Because Best Buy Mobile stores are much smaller in size and fewer in number compared to typical big box Best Buy stores [3], their revenue and value contributions are relatively low. If Best Buy gets halfway to its 1,000 mobile store target by the end of our forecast period, it would create an upside of less than 1% to $42 Trefis price estimate for Best Buy’s stock.

Revenue per square foot from stand-alone mobile stores currently lag behind the comparable figures for the company’s big-box stores. Best Buy’s mobile store sales could potentially rise as consumer preferences shift to high-margin smartphones and tablets. But even in this optimistic scenario, the additional stock upside would be very small.

You can see the complete $42 Trefis price estimate for Best Buy’s stock here.

Notes:
1. Figures reported in SEC filings for Best Buy
2. TWICE: Best Buy Mobile Stores Growing At 4G-Like Speeds
3. Calculated based on revenues, store count and retail square footage reported by Best Buy in its SEC filings