Best Buy Co. Inc. (BBY) is about to answer an interesting question when it reports third-quarter fiscal 2026 earnings on Nov. 25: What happens when you're selling more stuff, but the stuff you're selling doesn't make you much money?
The electronics retailer is riding genuine sales momentum—its best quarterly performance in three years during Q2. But there's a catch. The products flying off shelves are mostly lower-margin hardware like laptops and gaming consoles, the kind of items that boost your top line while squeezing your bottom line.
The Sales Are Good, The Mix Is Tricky
Management sounds optimistic about maintaining momentum. During the second-quarter earnings call, CFO Matt Bilunas guided for third-quarter comparable sales to match the 1.6% growth from the previous quarter. If that holds, Best Buy would be tracking toward the higher end of its full-year revenue guidance of $41.1 billion to $41.9 billion.
Two main forces are driving sales: a computing "replacement cycle" as older laptops reach retirement age ahead of the Windows 10 support sunset, and continued demand for the newly launched "Switch 2" gaming console.
Both are classic hardware plays—great for getting customers through the door, less great for profit margins. Management expects the adjusted operating income rate to stay flat year-over-year at approximately 3.7%. Recent gross margins have declined to 23.2%, a detail that has bears circling.
The "Hidden" Revenue Stream Nobody's Talking About
Here's where the story gets more interesting. While skeptics fixate on margin pressure from hardware sales, bulls are pointing to something else entirely: advertising.
Best Buy operates a retail media network called "Best Buy Ads," and it might be the company's most underappreciated asset. According to Schaeffer's Investment Research, this advertising business is generating serious money in a way that doesn't show up clearly in typical retail metrics.
Analysts at Jefferies estimate the ad business could generate $250 million in profit in 2025 alone. That's the kind of high-margin revenue that can meaningfully offset the costs of competing in the hardware wars. Retail media networks have become gold mines for retailers with significant customer traffic—think about how much money Amazon makes from ads on its platform.
What The Street Is Thinking
The market is giving Best Buy some credit for the potential. According to market data, the consensus price target sits at $85.32, implying roughly 16% upside from current levels. But investors remain cautious.
On Friday, the stock finished the regular session up 3.62% at $76.45. That's a nice day, but zoom out and the picture looks different: the stock has tumbled 14.62% over the last year and is down 11.28% year-to-date. The stock has maintained weaker price trends across short, medium, and long-term timeframes, though it carries a moderate value ranking.
The Nov. 25 Test
The upcoming earnings report will reveal whether Best Buy's bet is working. Can a burgeoning high-margin ad business scale fast enough to offset the profitability squeeze from selling laptops and gaming consoles? Can the company prove that its "hidden" revenue stream is more than just a nice side business?
Management has laid out clear expectations for comparable sales and operating income rates. Now investors will see if the numbers back up the narrative—and whether this advertising business is the secret weapon that changes how we should value the retailer.
