Is Barnes & Noble, Inc. (BKS) Going the Way of Borders

Page 1 of 2

With its announcement Tuesday that it is exiting the color tablet business, Barnes & Noble, Inc. (NYSE:BKS) has finally surrendered the multimedia tablet market to its much larger and well-capitalized rivals. This is a setback for its CEO William Lynch, brought on just three years ago to change fortunes at the struggling book retailer by making it competitive in the tablet business. Instead, Lynch and the company have discovered that the tablet business is even more competitive than the retail bookstore business.

Barnes & Noble, Inc. (NYSE:BKS)

Rising EBITDA losses for FY 2013 from its NOOK segment have finally caught up with slowly rising profits from its retail and college bookstores segment (see chart). In the latest April quarter, the loss at Barnes & Noble, Inc. (NYSE:BKS)’s NOOK segment wiped out the profit from the bookstores segment, resulting in an overall EBITDA loss of $122 million for the company. Even last year’s investment of $300 million by tech giant Microsoft Corporation (NASDAQ:MSFT) for a 17.6% stake in the Nook business, valuing that segment alone at $1.7 billion, seems to have not helped.

Who stands to gain

This is only a small investment for Microsoft, and not of much consequence to its shareholders. However, rumors that Microsoft could buy Barnes & Noble, Inc. (NYSE:BKS)’s e-book business for $1 billion, if proven true, could be a positive for both Microsoft and B&N shareholders. Given that B&N’s market-cap at Tuesday’s close was $934 million, the benefit to B&N’s shareholders is obvious, even if the e-book business purchase price ends up well below $1 billion.

Microsoft shareholders also stand to benefit from such a deal. After the purchase, Microsoft Corporation (NASDAQ:MSFT) would most likely discontinue the capital-intensive and highly competitive hardware manufacturing side of the NOOK business, integrating the NOOK bookstore and apps ecosystem into its Windows 8 platform. It would get immediate access to Nook’s 7 million active content subscribers, whom it can target with Surface tablets. Furthermore, Microsoft would own a digital book business and a robust NOOK ecosystem without having to build it from scratch, thereby enabling it to mount an effective challenge to Amazon (NASDAQ:AMZN) and Apple in the e-reading market.

Among NOOK’s tablet rivals, Amazon.com, Inc. (NASDAQ:AMZN) stands to gain the most from Barnes & Noble, Inc. (NYSE:BKS)’s exit from the color tablet business, with its Kindle Fire family of tablets. While Apple’s iPads are decidedly superior in design and ecosystem, and dominate the market with a 40% market share, even the cheapest iPad Mini — starting at $329 — is priced much higher than the Nook and Kindle tablets priced in the $199 and below range, and are simply out of reach for many first-time, budget-conscious consumers. Moreover, Amazon’s Kindle and Barnes & Noble, Inc. (NYSE:BKS)’s NOOK tablets are the most often compared in online reviews due to the similarity of product features and price points. It seems likely that with this latest development, Amazon.com, Inc. (NASDAQ:AMZN) will lose no time in flexing its marketing muscle to take-over a good portion of the market share left open by B&N’s exit.

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 Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!