Best Buy is known as the largest U.S. specialty electronics retailer, but some day, it may be better identified with healthcare instead.
As Best Buy has said, health monitoring services for seniors and other digital health initiatives mark a key part of its growth strategy. The retailer over the next 10 to 20 years could generate anywhere between $11 billion and $46 billion in cumulative revenue from its commercial health business, according to Morgan Stanley analysts in a 64-page report released Monday. How significant is that? The high end of that range tops Best Buy’s roughly $43 billion in annual sales in 2018.
“This would be material,” the report said. “We don’t think the market fully grasps Best Buy’s commitment to health….The company has shifted its focus to tech- enabled senior care…. We believe Best Buy has a durable competitive advantage in senior care, its niche in the healthcare services market.”
Just how serious is Best Buy in healthcare? Company executives have referenced ‘health” 44 times on earnings calls since 2018, versus only two times before that, Morgan Stanley analysts calculated. In the past year, the electronics retailer also spent about $1 billion, or 6% of its market cap, buying three healthcare services, “surprisingly” for a company historically known for growing without acquisitions, according to the report.
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In another example, Best Buy promoted former CFO Corie Barry, “the architect of its healthcare strategy” to CEO in June, the study said.
Best Buy in October bought GreatCall, provider of Jitterbug mobile phones and emergency concierge and monitoring services for seniors, for about $800 million, its biggest purchase ever. This year it bought another seniors-focused health services company, Critical Signal Technologies, or CST, to help “more quickly scale the commercial monitoring business,” CEO Barry said in the retailer’s most recent earnings call in August.
GreatCall had more than 900,000 paying subscribers when Best Buy bought it. CST, known for remote patient monitoring, has about 100,000 subscribers, some of whom access its services as a supplemental benefit under their Medicare Advantage plan.
Best Buy said earlier this year it’s “in pilot with a number of managed care organizations.”
The electronics retailer in August also acquired the predictive healthcare technology business of BioSensics and hired its data science and engineering team based in Watertown, Massachusetts. Why? Barry said that team drives innovation behind wearable sensor technology that can help detect falls and other issues facing seniors.
The three purchases also complement Best Buy’s Geek Squad and In-Home Advisors tech repair and home consulting services, the report said.
Services and other offerings that give customers an experience they can’t get elsewhere have been the hallmark of Best Buy showing how it can remain relevant in the age of Amazon.
While Best Buy isn’t the only one eyeing the promise behind the “intersection of healthcare and technology”—Amazon, Walmart and Apple, for instance, have their respective health-related initiatives—Best Buy’s focus on “serving an aging population” will create an “untapped white space opportunity,” the report said.
Geek Squad’s team of 20,000 is another advantage that would be hard for Best Buy’s rivals to replicate, according to Morgan Stanley.
To be sure, for Best Buy to reap that long-term revenue opportunity, several things have to work in its favor, the report said. For one, the largest U.S. health insurers have to accept and cover Best Buy’s services, and Best Buy needs to see “a high rate” of adoption by seniors. In the nearer term, Morgan Stanley estimated the business could add as much as $2 billion in cumulative revenue for Best Buy through 2025.
Total U.S. healthcare spending is expected to reach about $3.6 trillion this year, or nearly 15 times consumer spend in Best Buy’s bread-and-butter consumer electronics category, according to the report. The number of people aged 65 or older in the U.S. is expected to grow by more than 50% from 50 million over the next two decades, the report added.
Best Buy is “evolving from sales of wearable devices and other healthcare technology to include the provision of healthcare services for seniors,” the report said. Healthcare “is shaping up to be Best Buy’s next frontier of growth.”
Date: October 01, 2019