Best Buy Connect is a Step in the Right Direction

Best Buy (NYSE:BBY), although facing issues with its traditional business, seems to be making progress in the connectivity arena. Apart from offering products like smartphones and tablets, Best Buy has also been pushing forward on its wireless broadband service in order to aid the stunted sales and counter competitive pressure from large retailers like Wal-Mart (NYSE:WMT), Amazon (NASDAQ:AMZN) and Costco (NASDAQ:COST).

Previously, we took a broad look at what Best Buy is doing to regain sales momentum. Here we look more specifically at one aspect of this strategy – offering wireless broadband service.

Our price estimate for Best Buy stands at $39.84, roughly 40% ahead of market price.

Progress in Wireless Broadband

Best Buy management commented during the company’s recent earnings call:

“Outside of mobile phones, we continued to see significant growth of connectivity in other areas. A good proof point of this was unit growth over 50% on AirCards and MiFi devices that deliver mobile broadband service to computing devices.” ^[1]

Best Buy’s Connect service offers readily-available wireless broadband service at competitive prices. The idea is to partner with network providers and create a one-stop shop for customers to buy equipment and get connected. The upside for Best Buy goes beyond the incremental dollars earned from selling the wireless broadband service. Attractive prices and the option of contract-free plans could incentivize customers to buy connected devices, like laptops, at Best Buy.

So it really boils down to a broader strategy of increasing electronics sales. Other recent developments fitting with this strategy include Best Buy’s partnership with Clearwire to offer 4G data services over a WiMax network ^[2] and a deal struck with LightSquared to utilize its LTE network for 4G data services.

Ultimately this could spark recovery in Best Buy’s U.S. store revenue per square foot, which has been on the decline for the past few years. But can this really offset the impact of declining TV sales? It really depends on how many of Best Buy’s regular customers opt for the data service, and how successful the company is at attracting new customers with the service.

We don’t think this service can fully stop the bleeding from declining TV sales, although it is definitely a step in the right direction. You can examine how an improvement in revenue per square foot for Best Buy’s U.S. stores can affect the company’s stock value by dragging the trend line in the interactive chart above.

See our complete analysis of Best Buy’s stock here

1. Best Buy Q4 FY 2011 earnings transcript [↩]
2. Best Buy Connect supporting 4G Service and devices through Clearwire WiMAX, talkandroid.com, Mar 31 2011 [↩]