Barnes & Noble have not had the easiest year. They have restructured their bookstore network and closed many of its birck and mortar locations. The "dead tree" book business as a whole seems to be on the way out, with retail sales concentrated on online discount providers like Amazon. But amid all this gloom, the Nook ereader has emerged as a somewhat bright spot, and a wave of interest from Microsoft has sent stocks in the company to soar to record levels. Is this another stock bubble that is about to burst, or do investors know something that is not apparent to the rest of us?
Hunter Communications Original News Source:
The Fiscal Times
Link to article:
Excerpt: "While Barnes and Noble (NYSE: BKS) and its Nook e-book division may not be among this year’s exhibitors, the book industry headlines that likely will hit the papers in the coming days should prompt investors to consider the many risks that hover over the book retailing giant’s head, especially given that the stock is now sitting on a 34.5 percent return over the last 12 months and an astonishing gain of 46 percent so far this year.
The company is due to release its fourth-quarter earnings soon, and they may well be even more depressing than its third-quarter results, which saw a 10 percent revenue shortfall and a net loss when analysts had been calling for a profit. Barnes & Noble’s operating cash flow is solidly in the red, thanks in part to the costs of ensuring that its Nook e-book franchise keeps up with Amazon’s (NASDAQ: AMZN) Kindle – not to mention Apple’s (NASDAQ: AAPL) iPad, which has a secondary role as a reading device. And questions about the fate of Nook and of Barnes & Noble’s bricks-and-mortar business are – or should be – overshadowing the performance of the company’s stock.
While companies like Dell (NASDAQ: DELL) and Best Buy (NYSE: BBY) continue to battle with similar questions about the sustainability of their business models and have suitors in the wings eager to take them private at a suitably inexpensive price, Barnes & Noble must deal with two separate sets of uncertainties. On the one hand, Leonard Riggio, chairman of Barnes & Noble and its single largest shareholder, has said he might be interested in formally separating the traditional and the e-books business and taking the former private in a buyout. Meanwhile, rumblings that Microsoft (NASDAQ: MSFT) might be willing to fork over up to $1 billion for Nook Media’s digital business is largely responsible for the latest and largest surge in Barnes & Noble’s share price.
But there are no formal proposals in place, and the only certainties about Barnes & Noble are those large losses and the wobbly business model, not to mention an outsize debt burden and anemic cash flow. Investors who have gleefully bid up the price of the company may want to stop and ponder whether Microsoft will really make a formal bid of $1 billion for a business whose sales appear to have peaked in 2011. They should also consider how much financing Riggio can nail down for his own bid for a retailer that got its biggest sales boost not because of any fundamental improvement in its business but because its largest rival, Borders, went bankrupt."