Charting Nook’s Decline

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

Barnes & Noble’s Nook division hasn’t fared well over the past four years. What was once thought to be the only credible challenger to Amazon’s dominance of the ebook business in the U.S. has fallen into a distant second or third position in the marketplace (Apple at this point may sell more ebooks than Barnes & Noble — finding out if this is true or not requires talking to a range of publishers, authors and distributors, work we attempted on a small scale here.)

This past quarter, Nook may have finally turned a corner. It narrowed its losses to a much smaller percentage of its overall revenues, nearly eliminating them entirely. Stopping the bleeding at Nook has been a priority for CEO Michael Huseby as the company prepares the division for sale. A partnership with Samsung on tablets has been a key part of the improved performance.

Related: Huseby Appointment as CEO Signals Renewed Effort to Sell the Company

“We’ve been rationalizing the business and trying to adjust the cost structure so it makes sense relative to the level of content revenues we’re generating,” said Huseby on an earnings call today, adding, “Obviously the Samsung partnership results in the need for fewer employees.”

The downside in all this, of course, is that Nook, once nearly a $1 billion business, is now a shadow of itself, something ebook publishers interested in a diverse retail marketplace should be wary of.

See Nook’s performance since 2011 in charts below. The numbers were culled from quarterly SEC filings as well as annual reports where indicated via small asterisk (basically, Q4 each year).

 

 

Nook Revenues and Profits, Quarter to Quarter 

nook quarterly sales and losses since 2011 -- holiday quarter

* Holiday quarter

 

Trendline: Nook Revenues and Profits, Quarter to Quarter

nook quarterly sales and losses since 2011 -- holiday quarter -- pattern

Nook revenues grew fairly consistently until the fourth quarter of fiscal year 2012 (the winter of 2012, following the holiday quarter). Year over year comparisons that quarter were extremely unfavorable.

At the same time, notice the pattern of losses. As revenues grew, losses remained fairly consistent. And then, in the following holiday quarter, they ballooned, as Nook sold far fewer devices than anticipated and had to absorb the cost of millions of dollars of unsold inventory.

At the beginning of 2014 (Q3 FY2014) Michael Huseby took over the position of CEO from William Lynch. His focus on cutting costs has paid off even as revenues have declined precipitously.

It’s also worth noting here that Microsoft and Pearson pledged investments in Nook that totaled more than $700 million over five years in the spring of 2012 (or Q4 2012 on the chart).

 

Nook Annual Revenues and Profits

barnes & noble nook annual sales and losses

The trend here is clear: Nook is shrinking, but losing less money while doing so.

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