Barnes & Noble, Inc. (BKS): This Book Retailer Is Approaching its Eleventh Hour

Page 1 of 2

Barnes & Noble, Inc. (NYSE:BKS)Shares of book retailer Barnes & Noble, Inc. (NYSE:BKS) recently slid, after CEO William Lynch resigned on July 8. Lynch’s resignation after three years at the helm comes after the company failed to compete effectively against Amazon.com, Inc. (NASDAQ:AMZN) with its Nook e-reader tablets, and showed that it could not rebuild its crumbling brick-and-mortar business.

Lynch’s departure was part of a major management shuffle, in which CFO Michael Huseby was promoted to the dual role of the CEO of the Nook Media division and the President of Barnes & Noble, Inc. (NYSE:BKS). In addition, vice president Allen Lindstrom was appointed as Barnes & Noble CFO, and vice president of corporate development Kanuj Malhotra was promoted to the CFO of Nook Media. However, a new CEO for the entire company has yet to be appointed.

On top of all of this, Chairman Leonard Riggio hasn’t abandoned his ideas of either splitting up the business or taking it private. What does all of this chaos mean for investors? Should investors pick up some shares of Barnes & Noble, Inc. (NYSE:BKS), and bet on an eleventh hour turnaround, or is this the beginning of the end for the retail giant?

A painful end for the Nook

When the Nook was released in 2009, there were plenty of reasons for shareholders to be optimistic regarding its growth prospects. After all, Amazon’s Kindle e-readers, released in 2007, had enjoyed enormous success in making e-books popular.

Unfortunately, Barnes & Noble, Inc. (NYSE:BKS) underestimated Amazon’s strength, and missed the fact that Amazon’s popularity was not only rooted in book sales, but also sales of everything else. Amazon had become to e-commerce what Google Inc (NASDAQ:GOOG) was to Internet search.

In 2011, Amazon.com, Inc. (NASDAQ:AMZN) was able to channel all that demand into its first tablet computer, the Kindle Fire, which quickly became the second most popular tablet in America after Apple Inc. (NASDAQ:AAPL)’s iPad. It also used the tablet as a platform to launch a streaming video service to compete with Netflix.

Barnes & Noble was unable to remain competitive in these categories, which led to a dismal fourth quarter, in which Nook Media reported a 34% year-on-year drop in revenue to $108 million and a 130% decline in Earnings Before Interest, Taxes, Dividends and Amortization (EBITDA). Sales of digital content also declined 9% – a painful plunge from the 6.8% gain it reported last quarter. In other words, the company could not part with its Nook tablets at steep discounts, while existing Nook owners had lost interest and moved on. The business had failed on all counts.

Barnes & Noble, Inc. (NYSE:BKS) hasn’t reported its e-book market share since May 2011, when it still controlled 25%. By now, that market share has likely shrunk to less than 15%, since Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL) recently reported that they respectively controlled 65% and 20% of the market.

Microsoft’s $1.7 billion bridge to nowhere

Earlier this year, Barnes & Noble investors were excited by the prospects of a Microsoft Corporation (NASDAQ:MSFT) takeover. Since Microsoft Corporation (NASDAQ:MSFT) already owns 17% of the Nook Media division, which values the business at $1.7 billion, some analysts speculated that it was only a matter of time before the tech giant simply acquired the business. Others believed that Microsoft could absorb the Nook tablet business and make its own lower-end tablet to compete against Apple Inc. (NASDAQ:AAPL), Samsung, and Amazon.

However, Microsoft dispelled those rumors, only offering tepid support for the Nook via apps for its Windows 8 and Windows Phone devices. Not much has been heard from Microsoft Corporation (NASDAQ:MSFT) since, and it’s likely that the company will simply abandon its efforts with the Nook.

Another minority stakeholder is British publisher Pearson, which owns a 5% stake in the business that values it even higher, at $1.8 billion. Pearson’s investment is focused more on Nook’s college textbooks business than its tablets and e-books.

Tough choices ahead

During the fourth quarter, Barnes & Noble, Inc. (NYSE:BKS)’s numbers last quarter were ugly across the board. The company reported a loss of $118.6 million, down from a loss of $56.9 million in the prior year quarter. Total revenue declined 7.4% to $1.28 billion. Excluding the disastrous losses at Nook Media, which comprises 26% of the company’s top line, the company would have squeezed out a profit. On a per share basis, Barnes & Noble lost $2.11 per share, far worse than the loss of $0.96 per share that analysts had expected.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!