Please ensure Javascript is enabled for purposes of website accessibility

Best Buy Bets $800 Million on Connected Health

By Timothy Green - Aug 20, 2018 at 2:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The retailer is boosting its services business with a big acquisition.

If you were wondering how serious consumer electronics retailer Best Buy (BBY -3.41%) was about its plan to push deeper into services, the company's $800 million acquisition of GreatCall provides an answer. Announced on Aug. 15, the deal for the connected health and personal emergency response services provider will bring along 900,000 paying subscribers and more than $300 million of annual revenue.

What does GreatCall do?

GreatCall is the company behind the Jitterbug, a line of easy-to-use phones with large buttons aimed at senior citizens. GreatCall also sells a medical alert device that can detect falls and a wearable with an urgent response button that works with smartphones.

Person holding a Jitterbug Flip phone.

The Jitterbug Flip phone. Image source: GreatCall.

These devices each support a mix of GreatCall's services, available for a monthly fee. The Jitterbug Smart smartphone can be paired with a basic talk, text, and data plan, as well as health and safety packages ranging in cost from $19.99 per month to $34.99 per month. Services includes access to a personal operator who can assist with daily tasks, 24/7 access to a nurse or doctor over the phone, and automated check-in calls, to name a few.

Those monthly fees across nearly 1 million subscribers add up to over $300 million of annual revenue for the company. There are about 50 million Americans over the age of 65 today, according to Best Buy, and that number is expected to grow by more than 50% over the next 20 years. That gives GreatCall plenty of room for growth.

GreatCall CEO David Inns sees the Best Buy deal as a way to greatly increase the company's reach: "We are excited to partner with Best Buy to serve the active aging population on a bigger scale. ... By joining forces, we can do even more for this population, combining our products, services and expertise with Best Buy's customer focus and scale to meaningfully expand our reach."

GreatCall fits with Best Buy's strategy

Best Buy's "Renew Blue" turnaround plan, launched in 2012 by then-new CEO Hubert Joly, has been wildly successful. By lowering prices, investing in customer service, and building out the e-commerce business, Best Buy has returned to comparable-sales growth, boosted its profits considerably, and provided investors with an outsize return. Since bottoming out in late 2012, Best Buy stock has risen more than sixfold. Until recently, shares of Best Buy were beating out Amazon.com over that time period.

With Best Buy's core business in good shape, the retailer is looking to services to fuel its growth. The new "Best Buy 2020" plan revolves around expanding what the company sells. Best Buy launched Total Tech Support last year, a service that provides tech support no matter where the customer bought their products, and it expanded its in-home advisor program that provides free in-home consultations. The company also starting testing Assured Living, a program that allows adult children to remotely check in on an aging parent.

The GreatCall acquisition complements these efforts while boosting Best Buy's services revenue. Services accounted for about 5% of the company's domestic revenue in the most recent quarter. That works out to a little less than $2 billion annually.

Additional annual revenue of $300 million won't mean much initially for a company that does more than $40 billion of annual sales. But that contribution could grow quickly as Best Buy ramps up its efforts to sell GreatCall's products and services in its stores.

A smart acquisition

GreatCall is a profitable business, although the companies didn't disclose how profitable in the press release announcing the deal. Best Buy expects its non-GAAP earnings to be unaffected in fiscal 2019 and 2020, with a positive contribution by fiscal 2021.

A purchase price of $800 million, somewhere between two and three times annual sales, doesn't seem unreasonable given GreatCall's growth potential as part of Best Buy. It's certainly a far cry from the crazy multiples some tech companies pay for acquisitions.

The GreatCall deal gives Best Buy a new stream of reliable recurring revenue. For a company tied to the product cycles of smartphones, TVs, and other consumer electronics, that should be music to investors' ears.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$72.14 (-3.41%) $-2.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.