April 10, 2014
Barnes & Noble is optimistic about its future, even if no one else is
by Alex Shephard
Late last week, America’s eleventh favorite big box toy store, Barnes & Noble, suffered a major blow when Liberty Media announced it would be selling most of its 17% share in the company. When Liberty Media bought its share just three years ago, the Nook was only two years old and full of promise; in 2014, it’s widely seen as a catastrophic failure—hemorrhaging cash while Amazon and its Kindle continue to gain market share. The Motley Fool has a solid overview of what’s changed over the past three years:
Before it decided to sell off the majority of its ownership in the book retailer, Liberty Media owned about 17% of Barnes & Noble. However, the bookstore hasn’t been the high-flying page-turner the company hoped it might be. While it is true that from 2010 through 2012 the company grew its revenue 23%, from $5.8 billion to $7.1 billion, its growth engine quickly came to a stop.
You see, during this time frame, the primary driver behind the company’s top-line growth was its Nook segment. Over the three-year period, the revenue from Barnes & Noble’s Nook operation soared from a modest $105.4 million to $933.5 million. Put another way, this segment accounted for 64% of the business’s growth between 2010 and 2012, and it came to make up about 25% of the entire e-book market at its peak.
Since 2012, though, things have become progressively worse for this part of the business. Due to increased competition from the likes of Amazon, the company’s Nook revenue fell off a cliff. In 2013, Barnes & Noble’s revenue fell 4% to $6.8 billion, driven by the 16% falloff in sales reported by its Nook segment.
Barnes & Noble’s digital future has steadily diminished over the past three years and it seems like Liberty finally got fed up—or at least saw that nothing was going to change anytime soon. Liberty invested in B&N when its ebook sales were growing rapidly; now that growth has stalled to the point that no one expects the Nook to recover. The Nook, seen as the company’s future just a few years ago, has become a financial albatross that investors are watching closely, but Barnes & Noble remains committed to it—and to hemorrhaging cash on keeping it. It’s hard to see why anyone—even a company that owns one of the most obnoxious franchises in professional sports—would see Barnes & Noble as a good investment right now.
The company took a hit after news broke last week. According to the New York Times:
In 2011, Liberty had paid $204 million for a 17 percent stake in the bookseller. After the latest move, Liberty will have just under a 2 percent stake. The move disappointed Barnes & Noble’s other shareholders. After Liberty’s announcement, Barnes & Noble’s stock dropped sharply, and by the end of the day was down 13.52 percent, trading at $19.12 a share.
As I write this, six days later, Barnes & Noble’s stock has yet to recover—it closed yesterday only slightly up at $19.24.
But both Barnes & Noble and Liberty Media have been quick to whistle “There’s nothing to see here, folks,” as they try to stand in front of the giant, inextinguishable tire fire that is the Nook. According to Variety (yes, even Variety took a break from covering Adrian Grenier‘s career, or whatever it is they do, to jump aboard the “Barnes & Noble is a train wreck” boat), both companies were spinning up a storm:
Both Liberty Media and Barnes & Noble spun the move as giving the bookseller more flexibility to explore new strategic options. “We look forward to maintaining our relationship with the company,” Liberty Media president and CEO Greg Maffei said. “(Barnes & Noble CEO) Mike Huseby and his team are doing a great job in the retail, college and Nook spaces.”
Barnes & Noble is certainly in need of more flexibility and new strategic options, but there’s nothing to suggest that that’s what’s actually happening here. I’m no Jim Cramer, but losing a major investor should constrict flexibility and limit options.
Despite the troubling news about Liberty Media, B&N apparently took a double shot of optimism before the London Book Fair, where it crowed about its international expansion to Digital Book World. In truth, things do seem to be looking (relatively) up, at least internationally. According to DBW, the company “is now doing business in 32 countries and 14 languages and, despite turmoil on the balance sheet for the company.” But even when there’s good news, B&N can’t help but sound defensive and a little sad:
“We had a really good year last year,” said Colin Eustace, general manager of Nook International. “Brand awareness went through the roof. We’re still committed to this market.”
Yes, rumors of Barnes & Noble’s demise have been greatly exaggerated, but the Nook’s future looks darker by the minute, even as it expands internationally. Brand awareness may be through the roof, but that awareness seems limited to either reading articles about how the Nook is a catastrophe and avoiding making eye contact with the clerk behind the Nook desk at your local Barnes & Noble. For now at least, Barnes & Noble is Klaus Kinski and the Nook is a steamship. There’s something heroic in what they’re doing, sure; but there’s something tragic and more than a little mad, too.
Alex Shephard is the director of digital media for Melville House, and a former bookseller.