Apple Inc. (NASDAQ:AAPL) used its negotiating savvy to upend the Amazon philosophy; apps, e-books, and iTunes aren’t loss leaders but attractively priced to entice people into the Apple ecosystem to buy their high margin tablets, iPods, and smartphones. And beautiful, quality devices they are.
Who’s making book?
Barnes and Noble (NYSE:BKS) will continue to struggle even with financial support from Microsoft Corporation (NASDAQ:MSFT) and Pearson PLC (ADR) (NYSE:PSO) for its Nook e-reader. One would have thought the demise of Borders would have helped their bricks-and-mortar sales but instead as Fool Earica Parrish explains, precipitated a stunning decrease in book sales of 68% in 2012. But not e-book sales for Barnes & Noble; digital content sales were up 6.8% last quarter.
As for its college bookstores, 678 of them, propping up the other divisions, that success may not last as more colleges turn to e-textbooks and more and more students wise up to the many used online options available, including Amazon.com, Inc. (NASDAQ:AMZN) and eBay.
Fool Andrew Marder thinks Barnes & Noble’s last, best hope is to spin off the Nook. There has been speculation that Microsoft would buy Nook outright but buying Barnes & Noble based on that rumor would be foolish (and not in the good Foolish way).
Barnes & Noble’s numbers are negative: operating margin -1.63%, profit margin -1.52%, quarterly revenue growth year over year -8.80%, and return on equity -9.15%. In addition, there is an 18.20% short interest in this company that has a price/book ratio of 1.48.
What of Bezos’ “missionary” Amazon business model? Although shareholders probably want a more “mercenary” approach, they have seen enormous stock price appreciation over the years despite a forward P/E of 85.42, a PEG of 5.66, and a price/book ratio of 14.76.
Amazon.com, Inc. (NASDAQ:AMZN)’s e-commerce sales improve every holiday season but this missionary vs. mercenary philosophy will be a sticking point for investors.
Apple Inc. (NASDAQ:AAPL) has become the whipping boy of the market with more doom and gloom prognostications than during Steve Jobs’ health crises. The stock is down 27.55% over the last year, less than 10% above its 52 week low of $385.00.
It might be easier to swallow Apple Inc. (NASDAQ:AAPL) if one thinks of it as a technology consumer staple with its trailing P/E of 9.87 with a 2.80% yield at a 19.00% payout ratio. It has no debt with $41.70 cash per share. Its margins are superior to Amazon’s -0.14% profit margin and 1.04% operating margin at 23.46% and 30.92% respectively. The PEG now rests at 0.50.
The final chapter
Amazon.com, Inc. (NASDAQ:AMZN) has rewarded shareholders who believe in the Bezos mythos. While I have concern over the plethora of e-books and their future, the rest of Amazon, the other e-commerce sites are doing quite well. Amazon could make some changes to its self-publishing platform to raise the quality of e-books and head off reader exhaustion.
Barnes & Noble may not get it together in time to rescue what is at best a challenged business model. Best to stay away. Apple has become a battleground stock in what is a Bizarro type market response to what is a true value name. At some point, market sentiment will warm up to Apple Inc. (NASDAQ:AAPL) recognizing it for its superior retail stores, its negotiating savvy, and its value.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple.
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