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Barnes & Noble's Nook news: good, surprising

January 5, 2012 |  4:22 pm

Nooktablet
The good news: Barnes & Noble's Nook is selling big. The surprising news: As a result, the company may sell the Nook division. That's what B&N said Thursday in a statement that ran the gamut from jargon to obfuscation.Take a look:

"We see substantial value in what we've built with our NOOK business in only two years, and we believe it's the right time to investigate our options to unlock that value," said William Lynch, Chief Executive Officer of Barnes & Noble. "In NOOK, we've established one of the world's best retail platforms for the sale of digital copyright content. We have a large and growing installed base of millions of satisfied customers buying digital content from us, and we have a NOOK business that's growing rapidly year-over-year and should be approximately $1.5 billion in comparable sales this fiscal year. Between continued projected growth in the U.S., and the opportunity for NOOK internationally in the next 12 months, we expect the business to continue to scale rapidly for the foreseeable future."

In plain language, that means the Nook business may be spun off or sold. That comes in the same announcement, which proclaimed that sales of Nook devices were up 70% from a year earlier, setting a new holiday record for the company, with the tablet performing better than expected (the black-and-white e-ink Nooks, not so much). So -- why sell the Nook? At Wired, Tim Carmody explains:

Initially, B&N projected earnings before taxes, interest, depreciation and amortization (EBTIDA) of $210 million to $250 million. In December, the guidance offered was at “the lower end” of that figure. Now the company has revised its expectations again, to just $150 to $180 million. So after taxes and other non-operating expenses, B&N will most likely lose quite a bit of money, somewhere between $1.10 to $1.40 per share.

The drop in demand for the Nook Simple Touch and the cost of advertising the other Nook devices takes most of the blame for the drop in expected profit.

Some observers look ahead and see a dark horizon for the last surviving national brick-and-mortar bookstore. The N.Y. Times' Dealbook writes, "a spinoff of the unit would raise questions about Barnes & Noble’s ultimate fate." In a piece with the ominous headline "Barnes & Noble May Separate Nook Business as Losses Mount," the Wall Street Journal explains:

The bookseller tried for months to sell the company, but gave up last year around the time that its biggest brick-and-mortar rival, Borders Group Inc., went belly up. Instead of a sale, Barnes & Noble took an investment from John Malone and his Liberty Media Corp.

Maxim Group analyst John Tinker said Barnes & Noble is caught in a bind as it tries to appease traditional retail investors and those interested in the digital story.

On Wednesday, news broke that Barnes & Noble was looking to sell Sterling Publishing, which it acquired in 2003 for $115 million. Selling Sterling would bring an influx of cash in the short term, industry chronicler Publishers Lunch notes, addding, "While Amazon is investing heavily in their in-house publishing program, Barnes & Noble is headed in the opposite direction as part of their repositioning as a technology company."

Except -- why would a technology company sell the Nook? "This is about requiring sustained investment in the Nook business to grow and expand internationally," Forrester analyst Sarah Rotman Epps told Wired. "A separate Nook business may be able to attract new investment and partnerships and innovate more quickly."

That explains it. Now: to find a buyer.

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-- Carolyn Kellogg

Photo: Barnes & Noble Nook Tablet. Credit: Armand Emamdjomeh/Los Angeles Times

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