Consumer Positions

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Recent layoffs and pay cuts targeting service workers, alongside increasing reliance on AI to replace them will damage brand image, alienating service-oriented consumers willing to pay more. This year, Best Buy has initiated multiple rounds of layoffs, affecting an undisclosed number of Geek Squad technicians and floor sales representatives. These workforce reductions are part of a strategy to lower SG&A expenses by 5.3% year-over-year. As a result, the total number of employees will fall below 85,000, down significantly from a pre-pandemic peak of 125,000. They have claimed that the experience will not change…


Best Buy's primary competitive advantages in a crowded marketplace is the in-store expertise provided by its staff, particularly in product categories such as computing, mobile phones, and consumer electronics. Eroding this service capability through workforce reductions may give temporary margin relief, but will drive consumers looking for this to seek alternative shopping channels, weakening customer loyalty and diminishing the brand's premium positioning.

Competitive pressure from value players steal price-conscious consumers away. Best Buy is facing increasing competitive pressure from value-oriented retailers, which are attracting price-conscious consumers. E-commerce giants like Amazon and Temu are intensifying their focus on importing ultra-low-cost goods, which threatens Best Buy in categories such as speakers, earbuds, and phone accessories.

As of 2023, Best Buy led the consumer electronics market with 30% market share, followed by Walmart and Amazon at 25% and 11%. However, Best Buy saw the steepest decline, losing 1.1% of its market share y/y. This trend is likely to persist as Amazon and Walmart expand while Best Buy management guides an expectation to close 15 stores a year. Adding to the pressure on its personal electronics segment, the television market, traditionally a stronghold for Best Buy, is expected to continue growing at less than 1% y/y. Meanwhile, brick and mortar competitors like Walmart and Costco are outperforming Best Buy with continued offerings of high-quality TVs, cameras, and laptops at better prices.

Shift from adding value through customer services to competing on price will continue compressing gross margins to 21%. Best Buy has been rolling back various high-end customer service programs, such as in-house consultations. As discussed above, they have also laid off substantial parts of their service teams. As customer service diminishes, Best Buy’s primary competitive lever will be pricing. However, comparing various Apple products at Best Buy against Amazon and other retailers as an example, I found that Amazon was almost always $100-$200 cheaper. Even if BBY succeeds in driving revenue through lowering prices, margins will be substantially hit. 

For FY 1/26, Alex estimates EPS over 31% below consensus at $4.71 vs $6.85 as the above issues come together over the next 12-18 months. BBY has little room to differentiate themselves vs competition on all sides.



 Royal Caribbean Cruises Ltd. operates cruises under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands. Of today’s ~$1.9Tn vacation market, cruises represent roughly $65Bn, with RCL accounting for ~$16Bn/25% of cruise market share ($). Today, roughly 80% of RCL’s passengers are sourced from North America. Caribbean trips serve as RCL’s most popular product, representing 55% of deployments.

Investment Thesis

The market currently fails to appreciate both RCL’s recent and pending slate of mega-ships’ ability to prolong price increases and steal market share from weaker players such as Carnival Cruises. We expect RCL to grow net yields at 4%+ through 29P, reminiscent of the company’s stellar net yield CAGR of 5.6% from 2017 to 2019.

Furthermore, in ‘25 and beyond, RCL will benefit from the secular tailwind of budget-constrained consumers who seek value vacations and an influx of new Millennial, Gen Z, and overseas customers.

We issue a BUY recommendation on RCL. Our one-year price target of $210.00 is based on a discounted 17x 29P GAAP EPS of $22.42 ($24.17 adj.), assuming RCL’s current P/E ratio remains constant. This offers 21% upside from today’s price of $174.05. Our 12-month price target is driven by the following:


In 2025, we forecast net ticket revenue/APCD of $191 (vs sell side estimates of $188), ultimately extending to $224 in 2029 (4.1% ‘25-’29 CAGR). This 4.2%/$8 y/y increase will continue the post-pandemic trend of high demand as travelers vie for the chance to experience RCL’s large ships and industry-leading experience.

- In the short term, aggressively marketing ships such as Utopia of the Seas (4.1% projected y/y increase in SG&A/APCD), we believe RCL is poised to demand HSD y/y absolute net ticket revenue growth ($) in 25P, similar to the $10 increase from 2018 to 2019.


- In the longer term, RCL’s luxury pricing power is defensible, as its large-ship structural advantage will be maintained through the decade. Whereas Carnival is set to release one 4.3K capacity ship under Princess Cruises in ‘25, RCL expects to release two 5.6K ships in ‘25/’26, with two more Excel class ships coming online in ‘27/’28.


- Our longer-term high revenue growth estimates center align with RCL’s post-COVID trend of lapping Carnival and pricing neck-and-neck with Norwegian more recently; ticket yields have aggressively diverged away from Carnival, $190/day today versus Carnival’s $126/day.
 We forecast increased net onboard revenue/APCD from RCL’s ship amenities, mobile app, and private island strategy to bring onboard spend/APCD to $84 in 2025


- Similar to ticket spend dynamics seen post-COVID, RCL daily onboard spending has now risen to 20% less than NCL ($80 vs $100) vs. 31% less in 3Q19. While we forecast a 4.2% increase in net ticket yield in 25P, we expect net onboard revenue to be more inflationary, growing 4.7% year-over-year. Under this pricing model, RCL can maintain relatively affordable ticket prices to lure in new customers, leveraging their mobile booking app, private islands, and unique blend of family fun and quality to bring total spending closer to land-based vacations.


- Additionally, the current price gap between land and RCL vacations strongly suggests growth capacity for RCL onboard spending; we found that a land vacation such as a 3-day 4-person trip to Disneyland, cheaper than Atlantis, still costs ~$350+/person/day today compared to ~320/person for an RCL cruise.


- Cruises are increasingly popular among younger travelers, with recent studies showing a significant uptick in interest from Millennials and Gen Z. For instance, according to Jason Liberty (RCL CEO), “millennials and younger generations have gained 11 percentage points share compared to 2019... today, almost 1 in 2 guests are millennials or younger...it's a very powerful statement."


- Additionally, within under-penetrated regions such as Asia, we forecast an incremental cruise market revenue opportunity of ~$20Bn through ‘29 (20%+ CAGR from ‘25) from a >2x increase in penetration.




 Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.