As Best Buy Co. Inc. (NYSE:BBY) prepares to report third-quarter fiscal 2026 earnings on Nov. 25, the retailer faces a critical test that goes beyond simple sales figures: can a high-margin, “hidden” advertising business counterbalance the profitability pressure of selling lower-margin hardware?
Check out BBY’s stock price here.
Building On A Breakout Quarter
While management and analysts largely expect the company to maintain the positive sales momentum established in the second quarter—its best performance in three years—the mix of products driving that growth poses a distinct challenge to the bottom line.
Management has set clear guardrails for the quarter. During the second-quarter earnings call, CFO Matt Bilunas guided for third-quarter comparable sales to mirror the 1.6% growth seen in the previous quarter, signaling that the company is trending toward the higher end of its full-year revenue guidance of $41.1 billion to $41.9 billion.
The primary tailwinds remain a "replacement cycle" in computing, driven by the aging installed base of laptops ahead of the Windows 10 support sunset, and continued demand for the newly launched "Switch 2" gaming console.
The Profitability Puzzle
However, this top-line resurgence comes with a caveat. The sales mix is shifting heavily toward lower-margin hardware like gaming consoles and laptops, which drags on gross profit rates compared to service-heavy revenue.
Consequently, management expects the adjusted operating income rate to remain flat year-over-year at approximately 3.7%.
The Bull Case: “Hidden” Value in Ads
While bears focus on this structural margin pressure—citing recent gross margin declines to 23.2%—bulls are looking beyond the shelves.
A recent highlight from Schaeffer's Investment Research suggests that “Best Buy Ads,” the company’s retail media network, is the retailer’s most underappreciated asset.
Analysts at Jefferies estimate the ad business could generate $250 million in profit in 2025 alone, potentially shielding the bottom line from hardware margin erosion.
Investor Outlook
According to Benzinga Pro, a consensus price target of $85.32 offering ~16% upside hinges on whether Best Buy can prove that its burgeoning high-margin ad business is scaling fast enough to offset the costs of winning the hardware wars.
On Friday, the stock finished the regular session up 3.62% at $76.45 apiece. Over the last year, the stock has tumbled by 14.62% and year-to-date it has declined by 11.28%.
It maintained a weaker price trend over the short, medium, and long terms, with a moderate value ranking. Additional performance details are available here.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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