Is Best Buy's Advertising Push a Sustainable Margin Enhancer or a Short-Term Fix?

Best Buy's recent pivot toward retail media and advertising has sparked debate among investors about whether this strategy will sustainably bolster its profit margins or merely serve as a temporary salve for eroding hardware margins. With the launch of its third-party marketplace and the expansion of its "Best Buy Ads" network, the company is betting heavily on a shift from product-centric to data-driven revenue streams. However, the long-term viability of this approach hinges on its ability to compete with industry giants like Amazon and Walmart, which dominate the retail media landscape.

The Margin Play: Advertising as a Buffer

Best Buy's Q3 2025 results underscored the urgency of this transition. While hardware sales-driven by a "replacement cycle" in computing and the Switch 2 gaming console-boosted top-line growth, they also squeezed gross profit margins. Management expects the adjusted operating income rate to remain flat at 3.7% year-over-year according to earnings reports. In this context, the company's retail media network emerges as a critical offset. Analysts estimate that Best Buy Ads could generate up to $250 million in profit in 2025 alone, a figure that highlights its potential to shield the bottom line from margin pressures.

The third-party marketplace, launched in August 2025, further amplifies this opportunity. By allowing third-party sellers to pay for visibility in search results, the platform monetizes customer traffic while expanding product offerings. This dual strategy-leveraging both first-party data and third-party commissions-creates a higher-margin revenue stream compared to traditional retail. As CEO Corie Barry stated, the marketplace has already expanded online product availability sixfold, with online sales accounting for 32% of domestic revenue in Q1 FY26.

Scalability Challenges: A David vs. Goliath Scenario

Despite these gains, Best Buy faces an uphill battle against Amazon and Walmart, which captured 84.2% of retail media ad spending in 2025. Amazon's advertising revenue alone reached $56.2 billion in 2024, while Walmart's $4.4 billion in ad revenue grew at a 27% year-over-year rate according to industry analysis. Best Buy's relatively small scale limits its ability to offer advertisers the same reach or ROI, a challenge compounded by the lack of high-profile partnerships that Walmart has secured (e.g., with The Trade Desk for connected TV advertising) according to market reports.

Moreover, the retail media market is evolving rapidly. While in-store advertising-a sector where Best Buy could leverage its physical footprint-is projected to grow at 11.9% CAGR through 2030, the company must invest in technology like smart carts and loyalty-linked apps to capitalize on this trend. Such innovations require capital expenditure and talent, areas where Best Buy has not yet demonstrated aggressive moves compared to its rivals.

Investor Optimism vs. Structural Risks

Investor sentiment remains cautiously optimistic. Analysts project that Best Buy's advertising and marketplace initiatives could drive 2–5% revenue growth in fiscal 2026, with the potential for further upside if the company successfully integrates AI-driven personalization and expands into adjacent sectors like digital health according to investment research. However, skepticism persists about the sustainability of these gains.

The core risk lies in the commoditization of retail media. As market data shows, as advertisers shift budgets to digital "shelves" and dynamic banners, Best Buy's ability to differentiate itself will depend on its expertise in electronics and home appliances-a niche where it can offer specialized content and advisory services. Yet, even this advantage is not foolproof. Amazon and Walmart are expanding into in-store media and leveraging first-party data to create seamless omnichannel experiences, eroding Best Buy's edge.

Conclusion: A Strategic Pivot, But Not a Panacea

Best Buy's advertising push is a necessary evolution in a retail landscape increasingly dominated by data and digital engagement. The third-party marketplace and retail media network provide a viable path to higher-margin revenue, particularly in the short to medium term. However, the long-term sustainability of this strategy will depend on the company's ability to scale its ad tech capabilities, form strategic partnerships, and defend its niche against encroaching competitors. For investors, the key question is whether Best Buy can transform its "hidden" ad revenue into a core growth engine-or if it will remain a stopgap measure in a sector where scale and innovation are paramount.