How Netflix, Inc. (NFLX) Beat Out Best Buy Co., Inc. (BBY) to Lead the S&P Higher

Is Best Buy a best-buy?
Meanwhile, Best Buy Co., Inc. (NYSE:BBY) has gone from the endangered-company list to a market darling in the space of just a few months. Quarterly results from earlier this month allowed investors to breathe easier, as earnings topped estimates handily, and the big-box electronics retailer managed to eke out a small gain in revenue. With CEO Hubert Joly’s game plan to turn around the company apparently picking up steam, investors are excited about the prospects of Best Buy’s continuation as a public company — a big change from the recent past, when the possibility that founder Richard Schulze would charge in to take the company private seemed like the only way shareholders could exit their positions favorably.

Yet despite its rebound, many investors still aren’t convinced that Best Buy can ever regain its former glory. To win back business from Amazon, Best Buy Co., Inc. (NYSE:BBY) had to extend a price-matching guarantee to cover the online retailer and other Internet-based competitors. For Best Buy, that means accepting the handicap that the massive costs of having an extensive network of physical stores impose, yet somehow finding the capacity to allow already-thin margins to shrink further so as to meet its obligations to match prices.

Best Buy’s best chance is to cash in on the fact that most people want service for their electronics and are willing to pay for it. The company’s Geek Squad broke ground on an innovative service offering, and as electronics continue to get more sophisticated, finding more ways to cash in on that niche could eventually justify Best Buy’s recovery.

Will Netflix stay ahead of Best Buy?
Between these two companies, Netflix, Inc. (NASDAQ:NFLX) has the longer glide-path to future growth, if only because it hasn’t yet tapped into the full international potential of its business model. For Best Buy Co., Inc. (NYSE:BBY) to keep up, it will need to find more ways to go beyond its weakening core retail business and find profit-producing niches that can generate rising profits in the future. Given how tough a task that will be, I think Netflix has the upper hand in sustaining its lead for the rest of 2013.

The article How Netflix Beat Out Best Buy to Lead the S&P Higher originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends and owns shares of Amazon.com and Netflix.

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