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Nook speculation at this early stage is dangerous, and likely useless

January 7th, 2012 by · 3 Comments · opinion

Full Disclosure: Barnes & Noble signs my paychecks, and I own trivial amounts of BKS through a company sponsored 401(k). But I am field management, in stores, and so not privy to corporate secrets past what both you and I can both read in press releases.

So, B&N: in Thursday’s press release they said

“In order to capitalize on the rapid growth of the NOOK digital business, and its favorable leadership position in the expanding market for digital content, the Company has decided to pursue strategic exploratory work to separate the NOOK business.”

and two ‘graphs later

“There can be no assurance that the review of a potential separation of the NOOK digital business will result in a separation. There is no timetable for the review, and the Company does not intend to comment further regarding the review, unless and until a decision is made.”

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Of course others have commented; a small sample:

http://www.the-digital-reader.com/2012/01/05/barnes-noble-to-sell-off-the-nook/
http://news.cnet.com/8301-1023_3-57354321-93/barnes-noble-ceo-were-committed-to-the-nook/
http://dealbook.nytimes.com/2012/01/06/with-nook-plan-barnes-noble-sets-out-possible-shake-up/
http://seekingalpha.com/article/317961-why-barnes-noble-needs-to-keep-the-nook?source=yahoo

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I think the main thing that prompted the announcement was 1st: full legal disclosure. They are legitimately looking into this, & I’m sure there is an SEC rule that requires them to say so.

But, a decision to “separate” the Nook business could include operating the digital division as a wholly owned subsidiary, spinning off the business [issuing stock in a new Nook company to all current B&N shareholders], selling it outright, or something less revolutionary, like doing some basic math/accounting to list nook as a separate line item in B&N annual reports.

Or nothing. Nothing is an option.

I think the main thing that B&N wanted to accomplish with this announcement was proper consideration. Some props for what they’ve done in 2 short years. A whole scale reevaluation by pundits and investors of the business. It could be a thinly veiled message direct to Liberty Media, asking them to invest another half billion to buy the whole company outright (or to buy the nook business, unbundled)

At any rate, much like the announcement made that B&N was considering “strategic alternatives” up to and including a sale, which made the news last year.

If you were to ask my opinion, I must demure: that would be too much like investment advice. But I’m not quitting my job as a bookstore manager, or cashing out my 401(k).

reposted from Rocket Bomber under a CC license

image by paix120

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3 Comments so far ↓

  • Alexander Inglis

    Yes, agreed, props for what B&N has done with the Nook since it launched in Nov 2009. The question is where to go now: the consumer and competitive landscape is evolving rapidly and it’s not clear which path makes best strategic and economic sense.

    I wouldn’t hold your breath for Liberty Media pouring another $500 million into B&N any time soon: the $200 million investment from July is already worth 60¢ on the dollar (the deal was made with an implied share value of $17; BKS closed at $11 on Friday).

    And, you’re right, the announcement was partly driven by SEC disclosure rules … as was the signalling that the company expected to lose more by year end (Apr 30) than previously expected. And, with four months to go yet, that revised target is by no means guaranteed.

  • Esmeralda

    This has got to sound to many like B&N is saying that the Nook has the stink of death to it, and they’re eager to get rid of it before the smell gets in their clothes. Way to build customer confidence, B&N!

  • fjtorres

    The problem here is B&N has based a lot of their Nook marketing on tying it to their stores. It is premature to speculate but as long as the fate of Nook is *open* to speculation, there will be a cloud of FUD hanging over it.
    And if separating Nook was not absolutely necessary before, odds are now it will.
    Unlike last year’s (failed) funding quest that implied Nook and the rest of B&N would stay together, and thus had no great impact on the ecosystem’s perceived viability, yesterday’s announcements do in fact raise such issues.

    Yes, B&N has built Nook up into something significant; they took it from zero to $1.5 a year and 29% of the ebook market.
    But the question now floating around is: at what price?

    And just how big was that “shortfall” of eink Nook sales?
    A thousand? Ten thousand? A million?

    The bigger the number, the deeper the price cuts needed to clear out the excess inventory. And with the prospect of deep cuts, who is going to buy an STR until the cuts hit?

    The issue isn’t just what B&N said yesterday, but what they didn’t say.
    Until they fill in the blanks, premature or not, speculation will run rampant.
    And the freeze will spread.

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