Barnes & Noble, Inc. (BKS)’s Nook Business Is Struggling, But Can it Recover?

Performance and valuation

Barnes & Noble’s most recent quarterly revenue fell 7% year-over-year compared to Amazon’s 22% increase, while Apple’s revenue rose 11%. Nonetheless, the three companies have very different business models with the common factor between Apple and Barnes & Noble being the sale of tablets. On the other hand, Amazon is a more comparable rival, although it does have a host of business units different from Barnes & Noble.

Nonetheless, the bookseller’s gross margin is tied with Amazon’s at 25%, while Apple’s stands at 40%. Apple’s operating margin of 31% easily trumps Amazon’s 1%, while Barnes & Noble has a loss margin of 3%.

Barnes & Noble’s price to earnings growth (PEG) of 0.10 times is indicative of the company’s unattractiveness to investors, while Amazon’s PEG of 5.84 indicates that investors are very optimistic about the online retailer. On the other hand, Apple’s PEG of 0.51 times is indicative of the increasing competition in the industry against its expensively priced products.

The bottom line

Barnes & Noble is faced with a situation whereby it will have to decide on the future of its Nook business. If it decides to offload it, then it may have to find a strategic partner as it seeks to capitalize on the rapidly growing digital book-selling business.

I cannot picture the company retaining the loss-making unit, which has been disappointing over the last one year. If indeed the company dumps the Nook business, and finds a more vibrant partner, then a recovery could be on the cards. However, for now, the red light is too bright to ignore.

The article Barnes & Noble’s Nook Business Is Struggling, But Can it Recover? originally appeared on Fool.com and is written by Nicholas Kitonyi.

Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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