What it means for investors
This partnership had initially planned on building large retailers across Europe. With the European economy stalling, the partnership had abandoned these plans in 2011. This sale gives investors some comfort in the direction of management. The Best Buy management team isn’t trying to force itself in to a stalled market by spending a lot of money to build retail locations.
Of the $775 million sale price, roughly $650 million will be in cash. Best Buy Co., Inc. (NYSE:BBY) has been in the process of a turnaround for some time now. The European business unit has been a cash-drain, absorbing nearly $2.5 billion in cash. A $650 million cash injection is a small step towards recouping this cash loss.
The international market for Best Buy has been shrinking. In the last fiscal year ending in February 2013, the company saw a 9% decrease in international markets including Europe, Canada, China, and Mexico. Same store sales declined by 6% as well. So, fewer people were spending less money.
The international market brought in $11.7 billion in revenue and losses of $859 million for last year. 83% of all international stores are in Europe. So there may be some hope for the company to focus on its other international and domestic markets. Last year, management said there was a revenue decline in both the Chinese and Canadian markets. With one less market to watch over, the company can focus on future success.
What it means for competition
Best Buy Co., Inc. (NYSE:BBY) has been fighting off competition for years. E-commerce is still a major competition. In the fourth quarter of 2012, only $1.3 billion in its $16.7 billion total revenue came from online sales. This is approximately 7.8% of all revenues. Total revenues are expected to decline in the next year for Best Buy. Best Buy now has the ability to focus its efforts on increasing other business divisions as it exits Europe.
Shoppers are choosing Amazon.com, Inc. (NASDAQ:AMZN) over Best Buy. Best Buy Co., Inc. (NYSE:BBY) could make a play against Amazon, although it would be a large and challenging uphill battle.
Amazon has been the biggest player in online retail for some time now. It recently reported earnings for the first quarter of this year on April 25. It had a 22% revenue growth for the quarter. While this is extremely high, it is lower than the 34% it had grown in the past. Its media division, which includes books, movies, and music, grew by roughly 10%. Amazon.com, Inc. (NASDAQ:AMZN) is becoming the leader in this market and very well may be at a mature stage and will see less growth in the future. It may see even slower growth in the future as Best Buy initiated a price-match program. Best Buy Co., Inc. (NYSE:BBY) will now match online Amazon prices in its store. This coupled with online sales tax may cause a slight decline in Amazon.com, Inc. (NASDAQ:AMZN)’s revenue growth.
Amazon is also focusing on growing in other areas. It began its move in to hardware development when it launched the Kindle. The Kindle was a platform to deliver Amazon e-book content to users. It is more of a mobile delivery platform for other revenue than a standalone revenue-generating product. Now, Amazon.com, Inc. (NASDAQ:AMZN) is developing a television accessory that will allow consumers to stream Amazon digital movies and videos directly to their TVs. As of now it relies on other consoles. Amazon is seeking to replicate the Kindle by developing a product that delivers content and generates revenue.
Amazon.com, Inc. (NASDAQ:AMZN) is upping its competition against Netflix, Inc. (NASDAQ:NFLX). Netflix ran in to a lot of issues with customers and investors when it changed it subscription models and separated streaming and mail delivery videos. The company recently reported its first quarter earnings. It added roughly 3 million new subscribers in the quarter bringing total subscribers to 26 million worldwide. New subscribers are expected to rise this year and bring double-digit revenue growth in 2013.
As cable television costs rise, may consumers are switching to more affordable options like Netflix, Inc. (NASDAQ:NFLX) and Amazon prime. Netflix has been very successful at making the delivery of its content very simple and straightforward. It allows content to be delivered by various set-top devices. This is why so many customers stay with Netflix, Inc. (NASDAQ:NFLX).
Final thoughts
Amazon is trying to make a run for this market with its new hardware development. Its streaming service Amazon Prime has roughly 10 million subscribers, so it has a long way to go. As it is attempting to further penetrate this market further, it may leave an opportunity for Best Buy to take e-commerce sales away.
Best Buy Co., Inc. (NYSE:BBY) has less to focus on after its departure from Europe. Its other international markets aren’t performing very well so cash flow may suffer this year. It is now matching Amazon.com, Inc. (NASDAQ:AMZN) pAmazon.com, Inc. (NASDAQ:AMZN)rices and will benefit from online sales tax taking away from Amazon’s competitive edge. The battle is uphill and Best Buy has a lot to accomplish to ensure future success. Keep an eye on international profits this year to see how the company is handling its other markets.
The article This Company Is Exiting, Not Admitting Defeat originally appeared on Fool.com.
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