What Barnes & Noble Should Do Next: Sell Nook, Go Private
Let’s look at the numbers:
– Barnes & Noble retail stores had $374 million in EBITDA in 2013 (that’s a commonly used measure of profit), an increase of 16%
– Barnes & Noble college stores had $111 million in EBITDA in 2013, a decrease of 4%
– Nook had negative $475 million in EBITDA
You math whizzes out there can plainly see that Nook is weighing the rest of B&N down: $485 million in EBITDA without Nook, $10 million in EBITDA with Nook. Investors, many of them math whizzes, too, can see that as well. Shares of Barnes & Noble are down 15% in early trading.
So, if you’re the company’s executive leadership and board, what do you do to help your shareholders, employees and other stakeholders?
It might look like dumping Nook is a good idea. After all, company profits would rise at the retail and college entity that remained. However, when you dive more deeply into the numbers, you see that revenues at those divisions aren’t increasing significantly. Retail segment revenue decreased 10% to $4.6 billion for the full year and college segment revenue was up 1.1% to $1.8 billion. Wall Street rewards growth, not slow decline.
So, I think the path forward for Barnes & Noble and Nook is clear:
1. Sell the Nook business to a company that is willing to make huge investments and take on huge risks to make it successful (Microsoft? Google?). Microsoft was rumored earlier this year to be ready to make a $1 billion bid for Nook.
2. The remaining company will get hammered in the market, so take it private before that happens. A business that throws off half a billion in revenue a year while declining slowly with favorable leases on stores and growing power over a declining industry segment (physical bricks-and-mortar book retail) could be a very attractive cash cow for a private owner. Continue to take money out of the business, be smart about closing bookstores and ride it into the sunset.
It could be a very good swan song for Barnes & Noble founder and chairman Len Riggio, who has expressed interest in doing just that.
When asked on today’s conference call on an update on Riggio’s plans to take the retail segment of the company private, executives offered “no update.”