Retail catalyst: Best Buy may have an underappreciated profit machine with its advertising business

[Photo of shops and restaurants at Tower Shops outdoor mall Davie Florida Best Buy]
felixmizioznikov

Best Buy's (NYSE:BBY [https://seekingalpha.com/symbol/BBY]) advertising platform is being considered by analysts a key asset for the retailer that investors should pay close attention to.

Best Buy Ads was launched in 2022 as an in-house media company aimed at helping brands reach millions of tech-interested customers through data-driven, omnichannel campaigns. In short, the platform enables advertisers to connect with audiences online, in-store, and via Best Buy's (NYSE:BBY [https://seekingalpha.com/symbol/BBY]) mobile app, using insights generated from 10 billion annual website views, 65 million transactions, and a 200 million customer pool. The retailer has highlighted that the deep data integration allows for over 93% of transactions to be tracked to a customer ID, making campaign measurement and ROI calculation highly accurate

Advertisers can buy highly visible placements such as store takeovers, which let their brands dominate Best Buy's (BBY [https://seekingalpha.com/symbol/BBY]) physical locations via screens at entrances, TV walls, checkout points, and pickup areas. The immersive experience is now available to non-electronics brands like financial services firms, aiming to reach adjacent audiences in tech-focused retail environments.

Jefferies analyst Joseph Matuszewski thinks Best Buy Ads is considered an increasingly significant revenue stream for the company. "We see Best Buy Ads having a rising sphere of influence on BBY's P&L over the next 5+ years, contributing to annual gross margin expansion versus investor expectations for contraction," he highlighted. Crucially, Matuszewski thinks investors may be missing the upside of the alternative profit stream. Jefferies estimates the Best Buy Ads platform generates north of ~$250 million in P&L benefit this year and projects Best Buy Ads will generate more than $1 billion in value by 2030, with its +$600 million EBIT stream representing more than 20% of BBY's enterprise-wide operating profit.

Shares of Best Buy (BBY [https://seekingalpha.com/symbol/BBY]) were up 2.2% in Wednesday morning trading.

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