Morgan Stanley: Best Buy could make up to $46 billion in healthcare

Best Buy could unlock up to $46 billion in potential revenue with the company's healthcare investments, according to a report out Monday from analysts at Morgan Stanley.

Currently, Best Buy has annual revenue of $43 billion, meaning healthcare could be a big part of Best Buy's long-term revenue growth, according to Morgan Stanley's projections.

As other retailers like Walmart and Amazon enter the healthcare space, Best Buy is tackling the massive healthcare industry by focusing on tech-enabled senior care.

In the past year, Best Buy has spent $1 billion on healthcare acquisitions. The company's new CEO previously oversaw the acquisitions and growth in the healthcare space.

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The $3.5 trillion healthcare industry faces continued disruption.

Best Buy, the consumer electronics giant, is entering the US healthcare market by focusing on using technology to help care for seniors. And analysts at Morgan Stanley think the company will reveal new details about its ambitions at an investor event on Wednesday.

For the past few years, Best Buy has been growing out its healthcare division. Now, Best Buy's healthcare strategy could unlock between $11 billion and $46 billion total revenue over time, Morgan Stanley analysts said in a note on Monday. With Best Buy's annual revenue at about $43 billion, the potential growth for the company is significant.

Best Buy's move toward healthcare solutions follows the trend of big retailers entering the market. With healthcare costs on the rise, retailers see an opportunity to win patients over with more convenient places to receive care at a lower cost.

Walmart, for instance, is planning to build health clinics to offer a breadth of services conveniently and at cheaper prices than its rivals. In 2018, Amazon purchased the online pharmacy PillPack, which mails prescriptions to people who take multiple medications, packaging them together based on dose.

Read more: Companies like Walmart, CVS, and Amazon are beefing up their healthcare strategies. Here are their plans to upend the $3.5 trillion industry.

The analysts said that Best Buy's focus in senior care, helps sets Best Buy apart from these rivals

“We don't think the market fully grasps Best Buy's commitment to Health,” the analysts wrote. “We believe Best Buy has a durable competitive advantage in senior care, its niche in the healthcare services market.”

Best Buy's focus on technology to care for the aging American population

Previously, Best Buy's health strategy hadn't extended beyond fitness and wearables technology like FitBits. But in 2018, BestBuy acquired GreatCall, which makes safety devices for older adults.

That focus on technology for seniors helps Best Buy stand apart from other firms exploring health clinics or new ways to dispense medication.

An aging US population creates a growing customer base for Best Buy. According to the US Census Bureau, in 2017 there were 48 million people in the US age 65 and older, and that number is expected to almost double by 2060.

Looking at long-term growth, the analysts note that Best Buy serves seniors who want to live at home as well as their caregivers. The company could also benefit by convincing insurers to pay for some of its services, the analysts said.

In the past year the company has spent $1 billion on healthcare acquisitions focused on senior care, Morgan Stanley said:

In 2018, the company acquired GreatCall for $792 million, the largest acquisition in the company's history. GreatCall offers senior-friendly smartphones and wearables as well as health and safety monitoring devices. GreatCall was generating annual sales of $300 million prior to Best Buy's acquisition, and the analysts anticipated that GreatCall's growth will remain consistent.

In May 2019, Best Buy acquired Critical Signal Technologies for $126 million, which focuses on remote patient monitoring products and services for seniors living independently. The company has 100,000 senior subscribers, and works with 1,500 payers and 900 providers, the analysts said.

Most recently, Best Buy acquired BioSensics, which specializes in wearable sensor technology. For $21 million, Best Buy bought the healthcare technology arm of the company, including its data science and engineering team. The Morgan Stanley analysts point out that this is Best Buy's most “direct attempt at in-sourcing valuable expertise.”

The goal of the acquisitions is to use technology to monitor the health of seniors so that if something goes awry, doctors can intervene sooner rather than later. While that may reduce the costs that come with hospital visits, the analysts noted that it could allow for Best Buy to take a piece of the profits in a “mutually beneficial transaction.”

“Best Buy is becoming a pioneer in the use of healthcare monitoring to extend the lives of, and reduce medical costs for, seniors,” the analysts said. “Few other companies have the expertise to play, let alone win, in this space.”

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