Uh, the Nook "profits"...actually aren't quite *profits*...
(Look at the source, folks. Better yet, look at the full picture.)
Here's a couple more detailed sources:
http://www.marketingtools365.com/bar...ncial-results/
https://seekingalpha.com/article/418...all-transcript
If you look at the transcript of the latest investors call, you'll see that what Nook generated is $3.5M of EBITDA.
Quote:
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement. Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization. The formula is: EBITDA = Revenue -- Expenses (excluding interest, taxes, depreciation and amortization)
This earnings measure is of particular interest in cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges (such as manufacturing companies) or in the case where a company has a large amount of acquired intangible assets on its books and is thus subject to large amortization charges (such as a company that has purchased a brand or a company that has recently made a large acquisition).
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In general, EBITDA is a useful measure only for large companies with significant assets, and/or for companies with a significant amount of debt financing. It is rarely a useful measure for evaluating a small company with no significant loans.
http://www.investorwords.com/1632/EBITDA.html
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That is not a useful way to look at a unit of a larger business because there are ways of shifting costs around to other units (like the costs associated with the disappearing Nook Kiosks at B&N stores) and other charges like depreciation and write downs/write offs.
It is a particularly bad way to look at a shrinking unit because it won't include the depreciation of the backend of the unit or the loss in value of the full unit. If you look at the full report, B&N took losses in goodwill and cash to the tune of $128M. Those loses came from:
Quote:
The full-year operating loss was $128 million inclusive of $167 million of nonrecurring or unusual items.
The $176 million is comprised of four items; $136 million of non-cash asset impairment charges, mostly goodwill; $16 million of nonrecurring severance costs primarily resulting from the implementation of the new store labor model; $5 million of strategic consulting as we transform our business; and $10 million of markdowns declared non-returnable merchandise.
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Lots of loses not included in those EBITDA numbers. No taxes either.
Three things to consider about Nook numbers:
1- there is no telling where the EBITDA positive cash flow comes from: ebooks, ereaders, or the Samsung tablets Nook is peddling. Note that the source hyping the "profits" is the same source that a while back was using Nook as *proof that ereaders are dying*. We do know that the number of ebooks Nook sells are continually dropping each quarter and if that had changed they would be bragging about it the way they used to brag about the number of active Nook customer accounts. For all we know, the cash flow might be from the Samsung tablets, not actual Nook products.
2- If you look at the bottom line charges not included in EBITDA there is a $10M charge for "non returnable items". It could be for a number of things: the non-book merchandise in the stores, the exclusive signed pbooks they were selling for the holidays...or it could be for unsold Nook hardware. Wouldn't be the first time they had to write down the value of Nook hardware, would it?
3- it is no secret that B&N has been trying to sell the Nook unit for years and have found no takers. Reporting a positive cash flow is one way to make it look somewhat valuable (and there is still some value in it, if the price is low enough) and pump up the potential sale price. I could see WalMart or Microsoft buying it for something like $20-30M (and taking a goodwill write off the next year, much like Rakuten ended up doing with Kobo). So far, though, nobody has stepped forward and WalMart has (theoretically) something going on with Kobo and MS is going forward on their own after their fiasco teaming up with B&N.
The problem is there are too many unknowns with that positive cash flow; where does it come from? eBooks, ereaders, Samsung tablets? Not much value in Nook if the money comes from selling Samsung tablets.
A bit more value (mostly from the brand) if the money comes from the outsourced ereaders. (But ereaders are supposed to be a dying market, right?)
ebooks? Well, the caveat there is that buying into Nook is spending money to try to compete against Amazon in a market were Nook's primary "partners", the BPHs, are pricing their product to *minimize* sales. And bragging about it. As part of B&N, high ebook prices might drive some online pbook sales (though those are also declining) but as a standalone business or as a unit of a different business?
B&N has simply scared off too many ebook customers.
They may be dressing Nook up for sale but there really isn't much there for a buyer to be interested in.
The "profits" may or not be real but even if they are the numbers aren't all that meaningful. $3.5M EBITDA on sales of $112M isn't much to brag about other than " it's not bleeding us dry anymore". And that is the best possible spin, assuming the post-EBITDA charges are solely from the dry goods side of B&N.
It's nothing to get excited over.
It's not going to forestall the ongoing expectations of a B&N bankruptcy sometime in the next year or two.