WSJ: Investors Are Freaking Out About Barnes & Noble

[Kali Yuga]

Originally Posted by fjtorres

The stock market saw this and kneejerked the stock by what? 20%?

As JJoyce did correctly point out, most of the drop was because B&N revised their earnings projections for 2012 down sharply, and anticipate a loss of $1.10 - $1.40 per share. B&N announced breaking out the Nook business to try and stop the stampede to the exits.

Originally Posted by fjtorres

As the WIRED article points out, they're looking at a swing of (possibly) as much as a hundred million. They can cover it: nobody is saying B&N is headed for chapter 7.

I'll say it.

Actually, I foresee more a big reorganization, lots of store closures, a dramatic loss of status, and potential buy-out by another media company. It'll take time, but I also suspect Borders crashed and burned faster than most expected.

[kennyc]

I'll say it too and it has little to do with the Nook in particular, but in their business methods and the schizophrenic behavior they have displayed.

My recent visit to the local store just reinforced that perspective, the selection of books (CORE BUSINESS!) was atrocious, I could not find anything to spend my $30 gift card on so have to order something from the website. This behavior is going to drive core customers away in droves. It has me.

[fjtorres]

Originally Posted by Kali Yuga

I'll say it.

Actually, I foresee more a big reorganization, lots of store closures, a dramatic loss of status, and potential buy-out by another media company. It'll take time, but I also suspect Borders crashed and burned faster than most expected.

Chapter 7 liquidation for B&N?
Sorry, I don't see it getting that far. Not even as a reach.
Chapter 11 reorganization? That is more likely.
Not probable, today; not with what's been revealed so far. The most likely scenario, today, is B&N finds a way to mortgage Nook and stay in business for another year while they try to shed stores or find other uses for their non-productive floor-space.

Problem is, there is another shoe drop ahead of us: Amazon's 4th quarter.

As of November, Amazon was skating on thin ice themselves; they even warned about "flirting with red ink". Since then, their very positive sales reports have consolidated FIRE and eink reader sales. Depending on how those numbers break down, Amazon could find themselves reporting an eink "shortfall" of their own.

If it comes to that, all bets are off, no? After all, who would want to buy even a piece of a bleeding #2 in a business where even a well-run #1 is hurting? That's all pure speculation, of course, but the scenario where US eink reader sales flatten out in now in play regardless of the news from Amazon.

Again, the question out there is simply: how much risk would a hypothetical Nook white knight be willing to assume? And what price would it demand? Ditching eink? Ditching ADEPT compatibility? (Think about it.)

As I said: there's not enough data yet to worry about an immediate catastrophe, but there are plenty of bad-endings in sight and few good-endings in view. Hence the stock drop.

[kennyc]

Meh, Amazon has always skated on thin margins, it's what had made them dominant in the market....well that and exceptional customer service.

[Fbone]

I'm also wondering if B&N is doing this to try and get better terms from publishers, suppliers and distributors. They are so dependent on B&N and media reports say they have a good relationship (cooperative?) with many of them.

B&N may also have underestimated the thriftiness of Nook owners. Buying more free and 99 cent titles than expected.

[Skydog]

B&N lost me years ago, long before I adopted ereaders. Their inventory was pitiful even when locations benefited from a large volume of customers. Worse, management allowed a complete takeover of the store daily by college-age students who monopolized every chair, table and bench for the alleged purpose of studying when the vast majority were bare-footed nappers with drinks, laptops, and paraphernalia strewn everywhere. I wasn't aware that B&N was a public library. For any potential customer (such as myself) wanting to browse, sit and read before buying, it was a dreadful experience and an instant sale killer.

They are reaping what they have sown.

[Penforhire]

I fully expect Amazon's stock price to "correct" radically. The price to earnings (PE) ratio and the growth ratio (PEG) do not support anything close to the price the public seems willing to pay for it, even accounting for optimistic analyst estimates of future earnings. I predict a huge crash-and-burn on its price but it already soared higher than I expect or understand.

[twowheels]

Originally Posted by efindel

[...]but she has no interest in buying an e-book reader right now. Why? Because, while she's a heavy reader, she gets her books from the used book store in her town. She's used to paying a dollar or less for a book. She's also used to being able to buy a bunch of books, read them, then bring them back and get some reasonable fraction of what she paid for them as credit toward getting different books.

Exactly why I don't buy an e-book reader for my mom, even though she goes through HUGE piles of books. She buys all of her "trash novels" (er, sorry mom!) at about $.50 each at the local thrift store, then donates them back. This was also my biggest hesitation before buying an e-book reader, I also bought the majority of my books used -- it's definitely not a money saver for me.

[fjtorres]

Originally Posted by kennyc

Meh, Amazon has always skated on thin margins, it's what had made them dominant in the market....well that and exceptional customer service.

The tea leaf readers are reporting that they expect eink Kindle sales to be down.
Worse, eink *is* reporting a decline in monthly sales for december.
http://paidcontent.org/article/419-a...-e-readers/P0/

Mind you, the numbers they're estimating for Kindle sales are scary even at the "reduced" numbers; 23-25 milion eink and 15 million FIREs per year through 2014.

I've generally been skeptical of the IDC claims that NorthAm is 80% of the eink market, but if Kindle is indeed selling 2 million a month on average Amazon *hurting* is going to be mostly a theoretical exercise. And the content sales coming from the gadgets ought to take the sting out of the news.

[kennyc]

I would suspect that e-ink is staying the same or declining (slightly) with all the tablets, but I don't think it's a dead duck yet.

[fjtorres]

Originally Posted by kennyc

I would suspect that e-ink is staying the same or declining (slightly) with all the tablets, but I don't think it's a dead duck yet.

My expectation, too.
At least for the North American market.
But the implications are not terribly comforting: the term "shakeout" comes to mind.
If the market flattens out *now*, it means that what we see is what we'll get for the next few years: Amazon well over 50%, B&N struggling to stay afloat, Kobo with a bare toehold, and Sony showing the flag out of pride.
With everybody else lost in the noise.
And with both color eInk and Mirasol thudding at launch there doesn't seem much chance of a disruption changing the current dynamic.

Its going to get... boring...

[kennyc]

Oh I don't know....ultrabooks are the rage.

[Fbone]

Originally Posted by fjtorres

The tea leaf readers are reporting that they expect eink Kindle sales to be down.
Worse, eink *is* reporting a decline in monthly sales for december.
http://paidcontent.org/article/419-a...-e-readers/P0/

Mind you, the numbers they're estimating for Kindle sales are scary even at the "reduced" numbers; 23-25 milion eink and 15 million FIREs per year through 2014.

I've generally been skeptical of the IDC claims that NorthAm is 80% of the eink market, but if Kindle is indeed selling 2 million a month on average Amazon *hurting* is going to be mostly a theoretical exercise. And the content sales coming from the gadgets ought to take the sting out of the news.

Those are very high numbers. 23-25 million? I wonder how many are Kindle owners just upgrading. Could be the same 25 million people buying Kindles over and over again. Or they expect international sales to skyrocket in 2012. Or prices to drop to dollar store levels.

How many people in the US read? We must be nearing literacy capacity.

[tubemonkey]

Originally Posted by Fbone

How many people in the US read? We must be nearing literacy capacity.

Oooo, that's cold

[fjtorres]

Originally Posted by tubemonkey

Oooo, that's cold

Not. Really.


Official US literacy runs 95-97% but that includes a lot of social promotion.
More, ebook readers depend on people who read for entertainment more than once or twice a year.
This summer, ereader penetration was running at 15% of households with another 15% planning to buy this past holiday season. If two thirds of those actually bought readers, we should be at 25% penetration.

I doubt the US market for ereaders runs much bigger than 30%. For comparison, TV penetration runs 97% and PC penetration about 75%.

BTW, with the US holding about 120 Million households, 25 percent works out to 30 million households, 33% to 40 million. A good portion of those will be multiple reader households, so we're looking at a max installed base of something in the 50-60 million range, especially factoring in hand-me-downs.

Kindle sales for 2010 were generally estimated in the 14 million range and 2011 estimates ran from 16 to 22 depending on the source. Likewise, depending on the source, *North America* makes up 60-80% of the total eink reader market and Amazon sells half of the world total.

Anyway you slice it, eink readers are a *big* business and Amazon sells a honking lot of Kindles in and out of the US, with international sales due for big boosts out of continental europe, brazil, and whatever market they target next.

So any US sales flattening shouldn't have much of an impact on their bottom line, but the flattening isn't far away if its not here yet.