Goldman Sachs gives Barnes and Noble new $14 price target

[Danskeron]

In light of the DOJ activity last week, which in my eyes could give Amazon the opportunity to go even lower in the e-book pricing war with it's competitors, I was interested in anyone's opinion on Goldman Sachs lowered forecast for Barnes and Noble. In the research note released with their lowered $14 price target (from $15),

The analysts wrote, “We see risk to BKS from two sources: (1) Lower book prices could reduce gross margin in the ebook business, impeding an already precarious model (EBITDA losses through our forecast horizon). (2) Hastening the migration of book sales online, and away from the physical channel which, despite its secular challenges, is generating all of the firm’s free cash flow, and, in our view, most of its value.”

Coupled with their decline in online physical book sales, how does Barnes and Noble navigate the rest of 2012?

[HarryT]

I don't understand what this means. What is $14? The average price of a book?

[ilovejedd]

Originally Posted by HarryT

I don't understand what this means. What is $14? The average price of a book?

I do believe it's for share price.

[HarryT]

OK, thanks. I'm afraid the importance of this eludes me, but I'm sure it's of interest to some.

[soondai]

I just don't see how Barnes and Noble makes it 2 more years.

If Amazon returns to selling ebooks below cost, they cannot match it. The Glowlight is a cool idea, but I doubt they sell many at 139 and of course they'll be forced to drop the price once Amazon launches a Kindle with that feature. The cheap android tablet market is likely to get pretty crowded soon too, so I don't expect there's a lot of future selling Nook tablets and the like.

I'm no financial expert, but I'll be (pleasantly) surprised if I can take my Nook to a store to read samples and drink coffee come 2014.

[Kali Yuga]

Originally Posted by HarryT

OK, thanks. I'm afraid the importance of this eludes me, but I'm sure it's of interest to some.

It means that an equity research analyst at Goldman Sachs is less confident in the value of B&N's stock. They cut the expected target price from $15/share to $14/share.

The analyst statement:

“We see risk to BKS from two sources: (1) Lower book prices could reduce gross margin in the ebook business, impeding an already precarious model (EBITDA losses through our forecast horizon). (2) Hastening the migration of book sales online, and away from the physical channel which, despite its secular challenges, is generating all of the firm’s free cash flow, and, in our view, most of its value.”

[Danskeron]

thank you Kali Yuga for the better explanation, and soondai for your response.

I keep hoping B&N will turn things around, but I'm just not seeing it.

On a selfish note, that impacts my decision on whether to go with the new glowlight reader or consider switching e-reader companies ( I have 1 color nook that I love, and 3 sonys - one of which I still travel with - spanning back to the rocket e-reader sitting on a shelf collecting dust ).

Plus, it's a part of my routine to go into the local brick and mortar B&N to find new books, new authors and read selections of books before I decide to purchase. I now have a wider variety of favorite authors I never would have tried before because of the nook/in-store reading model, and I am not looking forward to losing this.

[tubemonkey]

B&N should spin off Nook, then dump everything else. Some small Nook Boutiques coupled with a Starbucks, etc should do quite well.

[Shack70]

Originally Posted by tubemonkey

B&N should spin off Nook, then dump everything else. Some small Nook Boutiques coupled with a Starbucks, etc should do quite well.

OMG they would make out so well instead of the stores they have now.

So to no ones surprise Barnes and Nobles is selling less and less tradtional books and it's dragging them closer and closer to closing.

[RainingLemur]

Originally Posted by tubemonkey

B&N should spin off Nook, then dump everything else. Some small Nook Boutiques coupled with a Starbucks, etc should do quite well.

That's...actually a pretty good idea. Get their stuff in coffee shops and other casual hang-out spots like that... Could do well for them.

[Kali Yuga]

Originally Posted by tubemonkey

B&N should spin off Nook, then dump everything else. Some small Nook Boutiques coupled with a Starbucks, etc should do quite well.

Errr....

1) The bookstores still make money. Dumping something that's still profitable, even if it's headed for trouble, is suicide.

2) They can't simply terminate all their leases, return all their books and wash their hands of the brick & mortar business.

3) B&N has been losing money on the Nook, because it costs an incredible amount just to make and market the device in the first place. So you're basically recommending they dump their source of profit, for something that loses them money?

4) B&N without its stores will be a worthless hollow shell of itself.

Now do you see why B&N is dwindling in the eyes of equity analysts...?

[fjtorres]

Originally Posted by Kali Yuga

Errr....
2) They can't simply terminate all their leases, return all their books and wash their hands of the brick & mortar business.

That is the biggest problem B&N (and other "Big Box" retailers) face. Their storefronts are massive fixed costs that are making up an ever-increasing fraction of their operating costs as their pbook sales decline. That is *exactly* the reason Borders wasn't able to find a buyer for even their profitable sites.

Those leases are positively toxic so they have to find ways of monetizing that relatively expensive floorspace.

The one thing they most *need* to do is the one thing they *can't* easily do.

The analysts in question are saying that they don't think B&N can grow their Nook income fast enough to make up the (expected) decline in pbook income. It is up to B&N management to give the lie to that assessment by executing.

[plib]

Originally Posted by fjtorres

It is up to B&N management to give the lie to that assessment by executing.

What is the preferred method? Hanging, shooting, decapitation or harakiri?

[Fbone]

Stock closed up 1.3% Monday (S&P flat) to $10.92.

3 Analysts rate a buy
1 underweight
2 sell
2 hold

Doesn't look like the analysts have a clear idea of the company's future.

[SteveEisenberg]

Originally Posted by Fbone

Doesn't look like the analysts have a clear idea of the company's future.

They can't, because the current market value is a digest of the opinion of all stock buyers, the great majority of whom are directly or indirectly getting their information on what the company is worth from said analysts. If the bulk of analysts thought the price was going toward value X, it would already be there.

What I just wrote couldn't be less original -- it seems to me the conventional financial wisdom of professional economists. Before taking any such analysts seriously, read A Random Walk Down Wall Street. (B&N EPUB is US$19.46, and no Kindle edition. I advise used paper or the public library )