Barnes & Noble, Inc. (NYSE:BKS) reported a 94.2% decline in earnings before interest, tax, depreciation, and amortization. Meanwhile, the stock rallied in the Wednesday trading session by 4.3%. How can a stock rally after the company reported a 94% decline in earnings year-over-year? But, believe it or not, there are a lot of positives when it comes to investing into the company.
The company is planning on spinning off its Nook segment. Well not exactly spin-off, but develop partnership agreements whereby a company would be taking on all of the risks, and costs, of operating a tablet business. What Barnes & Noble, Inc. (NYSE:BKS) will supply is distribution of the tablet device in its stores, certain software features like the Barnes & Noble, Inc. (NYSE:BKS) reader app, and the Nook brand. This will lower the amount of money lost from the Nook business segment. The company reduced its Nook-segment-related spending by 34%.
The company reported a 5.9% decline in revenue year-over-year because there weren’t any blockbuster book hits that could replace the Hunger Games and Fifty Shades of Grey. On the other hand, it was able to grow revenue in its college segment by 10.7%. The college segment is going to be the company’s fastest-growing business segment.
Going forward, the Nook will lose the company less money. Barnes & Noble, Inc. (NYSE:BKS) will continue to close losing retail stores and will continue to grow its college-book campus business. Analysts on a consensus basis anticipate earnings to grow by 61.9% in the current fiscal year, which will have to be driven by falling costs.
Microsoft Corporation (NASDAQ:MSFT) the potential partnership contender
Microsoft Corporation (NASDAQ:MSFT) could be the potential contender for partnership. The company was hoping to buy out the Nook business for $1 billion. But the next best alternative is to take on the risk of developing, marketing and selling Nook devices.
The Nook has an established market presence, and all it really needs is broader distribution. The technological sophistication of Microsoft Corporation (NASDAQ:MSFT) and its success in consumer electronics clearly demonstrates that the company could turn the Nook into a more successful business.
The Barnes & Noble, Inc. (NYSE:BKS) Nook HD commands 8% market share. Going forward Barnes & Noble is hoping to collect revenue from media sales. If that is the case, then its partnership with Microsoft could be lucrative. Microsoft will get a device that has an established market presence and distribution channel.