Barnes and Noble: a declining book selling empire?

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I started writing this post a while ago, after I bought Barnes Noble nook (e-reader), and Barnes Noble stock (NYSE:BKS). BN recently changed its brand of e-reader app on Android from BN to nook (it already use nook on iPhone and iPad), so nook is more than an e-reader, it’s at the center of BN’s digital book.

What’s up with Barnes and Noble stock
Stock was under heavy selling pressure, after announcing price cut of Nook e-reader, and fiscal 2010 Q4 result (2011 Q1 and full year outlook), before the announcement of potential “taking private” and Ron Burkle (its second largest shareholder) proxy fight. The stock bounced from as low as about $12 to $17 in couple months since the announcement.

But the fundamental problem facing the company: transition from traditional book to ebook is too high a mountain for BN to climb. Back in “printed book” days, BN can use its scale to get better rate from publishers and commercial real estate companies, beating a lot of mom and pop stores on the way. Now physical stores become a liability. Compared to Amazon (kindle) and more recent Apple (iPad), nook is not standing out (both hardware and software, read this Mossberg review on 3 e-reader apps for iPad), and can not win from scale, even presence at BN book store does not overcome Amazon Kindle’s TV commercial and Target store presence. Target is going to carry iPad soon. BN does have presence at Best Buy, but Kindle is coming to Best Buy soon.

Burkle criticized BN founder and largest shareholder Riggio almost anything (Riggio did the same to Burkle). At the dispute is the recent transaction of BN buying College bookseller (valuation discussion below). Valuation aside, I think Riggio is trying to salvage his empire by banded the retail stores with more stable business – college book store. College book stores are perceived as more stable because students have to buy textbooks. As long as college enrollment does not decline (this usually holds as nowadays college degree is necessary for most white collar jobs). The only thing is here digitization is happening too. BN does have some initiative, Amazon Kindle DX was trying to make a dent here (was not successful), but Apple iPad is posing a serious player. This is causing more problem for BN.

So who should you vote in the Proxy fight? As I said earlier both sides accuse the other side as totally moron. I think the truth is somewhere in between. I don’t think Burkle has a magic bullet here, and I don’t think Riggio really understand this facebook era. I can see Kindle has a facebook page, and BN has a facebook page, but NO facebook page for nook. WOW. Notice BN does not air commercial on TV as well (this is more understandable because they don’t have deep pocket as Amazon and Apple). But NO free facebook page (for marketing and brand awareness). Something is broken in the BN management.

more readings at WSJ.

College bookseller buy valuation

(Old news Aug 11, 2009) WSJ – Barnes & Noble Heads Back to School With College Booksellers Purchase, link here.

From BN press release:
…a transaction valued at $596 million, or approximately $460 million net of College’s cash on hand on the expected closing date.

Based on College’s fiscal 2009 results, BKS would have realized incremental earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of $115 million from acquired operations and assets.

per Business town:
“Will pay 4 to 5 times EBIT if there are growth prospects and no requirements for additional capital.”

“Will pay over 5 times EBIT if net worth is 60 percent or more of the selling price.”

“Will pay 5 to 6 times EBIT for companies with a 15 to 20 percent return on investment.”

“Will pay 5 to 6 times EBIT if there are consistent earnings, good management, and market leadership.”

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