What Barnes & Noble Should Do Next: Sell Nook, Go Private

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

Following another earnings report exhibiting the same pattern, it’s clear now what Barnes & Noble should do now that it’s backing out of the tablet device business: Split, sell, 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.”

2 thoughts on “What Barnes & Noble Should Do Next: Sell Nook, Go Private

  1. Theresa M. Moore

    What everyone is also ignoring is that the publishing arm of the Nook ereader, Nook Press, has an author/publisher agreement that reads like it was written by Darth Vader. I chose to remove my titles from PubIt and go back to Smashwords because the ebooks weren’t selling through PubIt and Smashwords had a better reach. Yes, Barnes & Noble should divest itself of Nook and develop a dedicated ereader — because most customers would rather be reading a book instead of getting distracted by other stuff. And Nook Press is no improvement on PubIt, making unreasonable demands of publishers instead of just allowing straight flow through. Nook Press is also trying to charge for services which were free until it took over. If that is part of the reason for BN not gaining more customers, then BN should kick Nook Press to the curb.

  2. Christy

    If B&N would use Amazon’s business model, they could revitalize Nook. And not just in terms of customer service. Amazon cut B&N out of a lot of content — and anyone who doesn’t think indie authors are selling a boatload of books is seriously living in the past — by implementing Select. If B&N had responded at all, by creating a similar promotional entity or by making it easier for indies to publish, they wouldn’t be so deep in the red. Instead, they make it difficult to publish by not accepting certain epub outputs, they make it difficult to compete with Amazon by not allowing free days. There are many authors who would leave Select if B&N offered them a viable alternative. But they don’t. That could all be turned around if B&N hired someone who actually had their pulse on e-publishing and e-marketing to run their online sales, instead of the people they’re currently relying on.



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