Microsoft Corporation (MSFT), Amazon.com, Inc. (AMZN): Barnes & Noble, Inc. (BKS)’s End Could be Near

Is there value in the retail operation?

Putting aside the money-losing NOOK division, is there any value in just the retail book stores? Although profitability has declined, the division is still making money: last quarter, Barnes & Noble’s retail operation generated $65 million in EBITDA.

It is, however, a business in decline. While paper books may stick around for years, it seems inevitable that, at some point in the future, digital books will replace them. And even if paper books are still common in the years to come, will a large public bookstore chain still have a place in the market? With Amazon.com, Inc. (NASDAQ:AMZN) Prime’s two-day shipping, loyal customers can get paper books delivered within 48 hours.

At the same time, the fact that the retailer’s operation is so dependent on megahits like 50 Shades of Grey is distressing. These are popular books like that can be bought at a variety of stores — Target, Wal-Mart, even Kroger. Barnes & Noble’s competitive advantage is that it stocks a deep library of titles; if that’s not an asset, then the business has existential problems.

Moreover, it’s not a particularly good sign that Barnes & Noble’s chairman is backing out on his plan to buy the retail operation. There might have been a thousand reasons why he changed his mind, but as an insider it suggests that he may see some disturbing trends taking shape.

Investing in Barnes & Noble

It’s possible that Microsoft comes in and saves the day. If Barnes & Noble can sell the unprofitable NOOK division to Microsoft — and score a cool $1 billion in the process — shares should appreciate significantly.

But if that doesn’t happen, Barnes & Noble could continue to plummet. The NOOK business, in its present state, is already struggling to survive against Amazon.com, Inc. (NASDAQ:AMZN). With Amazon expanding its hardware business, that task should only get more difficult.

As for the retail operation, it’s making money but faces questions of long-term viability. With the company’s chairman abandoning his quest to purchase the operation, the situation appears dire.

For now, Barnes & Noble remains an extremely speculative investment.

The article Barnes & Noble’s End Could be Near originally appeared on Fool.com and is written by Sam Mattera.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Microsoft.

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