Retail Middlemen Vanishing Into the Internet: Activision Blizzard, Inc. (ATVI), Best Buy Co., Inc. (BBY), GameStop Corp. (GME)

Best Buy Co. Inc. (NYSE:BBY) does have a chance

Back to retailers who might be finding themselves irrelevant. I think Best Buy Co., Inc. (NYSE:BBY) does have a good chance of clawing itself into relevance. Best Buy Co., Inc. (NYSE:BBY) has a less specialized business than GameStop Corp. (NYSE:GME), but is facing stiff competition from Amazon. Specialty retailers would normally be better off, but GameStop Corp. (NYSE:GME) faces direct existential threats to its business that are unique to much of the entertainment industry, like digital media and streaming.

Best Buy Co., Inc. (NYSE:BBY) needs to make serious changes. One thing I can think of is becoming more like an electronics gallery, and carrying more products that have custom specifications instead of general one-size fits all stuff. Examples would be high quality cameras or speed cameras instead of only ten standard digital cameras. Best Buy Co., Inc. (NYSE:BBY) will be carrying the Leap Motion, exclusively I believe. Best Buy will also need to grow its online business.

Year-to-date the stock is up over 70%. Not sure it deserves that much of a gain yet. It is taking steps, but certain changes are double-edged. The price match program, while increasing sales might drive the company into lower margins or deeper losses. Best Buy Co., Inc. (NYSE:BBY) only recently became unprofitable and its most recent quarter was profitable.

Its losses for the previous 12 months are around $250 million, which is not terrible considering the $1.8 billion in cash. Also, those are earnings, but operating cash flow is $1.422 billion over the same period. Its debt-to-equity ratio is 0.62, which gives the company some flexibility. It also has a 3.7% dividend yield, and the next dividend is in April 2013. The company is not hurtling towards bankruptcy, but concerns remain. Best Buy is a high-risk play and with the stock having risen so much, I wonder if there is any near-term rewards.

Conclusion

I always like Activision Blizzard, Inc. (NASDAQ:ATVI) for making awesome products that everybody wants. The Heart of the Swarm launch party around the world was amazing. I watched the live stream. Best Buy is a long shot for those who love to take risks. The reward is not as high as it could be, since the stock is already up so much. However, Best Buy is not posting heavy losses so it did not take much of a beating. I worry about GameStop Corp. (NYSE:GME) and I would stay away until something that can carry the company in the long-term shows itself.

The article Retail Middlemen Vanishing Into the Internet originally appeared on Fool.com and is written by Nihar Patel.

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