Best Buy CEO Run Out of Job – But Amazon Suffers Collapse of Margins to Win Sales
A stock chart covering Brian Dunn’s tenure as CEO of Best Buy (BBY) suggests he got the stuffing kicked out of him by online competitor Amazon (AMZN), which invaded the consumer electronics market in a big way in recent years.
And all one needs to do is pick up a business magazine if you’ve forgotten that Jeff Bezos, founder and CEO of Amazon, is a genius, as Forbes reminds us in the current issue.
But whose company’s results actually suffered most from the competition? Best Buy’s margins narrowed over the last five years, in no small part due to the price war Amazon waged. But Amazon’s margins positively collapsed, as it threw in free shipping to sustain sales growth – the metric investors seem most fixated on in judging Amazon shares.
As seen in the chart above, there is no doubt consumers increasingly prefer buying from Amazon. But rather than turn its growing sales dominance into higher profits, Amazon appears to lose money on incremental sales, as sales growth has produced reduced net income. The strategy has Best Buy reconsidering its approach to retailing and now parting ways with its CEO. So, sure, Amazon is beating Best Buy.
But does that mean Amazon is winning? Investors certainly think so, bidding its shares up and sending Amazon’s PE into silly territory, well above 100. Best Buy’s PE, meanwhile, is lower than 8. One of these seems to make sense.
Filed under: Company Analysis