Thursday, January 26, 2012
The Future of Best Buy
I recently took an international business class. We had to choose one company and one country, and determine if that company should expand into the country we chose. I chose Best Buy (BBY) and the country of Norway. I determined that Best Buy not only should avoid expansion into Norway, but they should cut costs in America, and maybe close down certain locations here. Best Buy faces fierce competition especially from amazon.com. Also retailers like Wal Mart and Target sell much of the same merchandise that Best Buy sells. I predict that eventually Best Buy will go the way of Circuit City, and cease to exist. In September of last year, one of the company's officers sold almost 11,000 shares. In April of last year, another officer sold 43,000 shares. Insider transactions can be accessed easily through finance.yahoo.com. Last year, Best Buy's share price fell by 27 percent. Their sales of televisions and computers has declined. Best Buy used to depend on sales of DVDs and CDs but many people do not buy these anymore, instead they buy mp3s and watch movies on demand or stream via Netflix. The percentage of physical media allocated to each store has been shrinking. The transition from physical media to digital media has hurt many brick and mortar book stores and CD stores. Amazon.com has an advantage since they have no physical retail outlets. Best Buy's total assets versus total liabilities as of February 26, 2011 is almost $18 billion in assets versus about $11 billion in liabilities. Retained earnings are over $6 billion. So, the company has breathing room financially, but still I wonder about the long term health of this company, and its cash flow.
* Some information from finance.yahoo.com and The Wall Street Journal