The Myth of Barnes & Noble's Success

The market was positively excited by the quarterly earnings of Barnes & Noble (NYSE: BKS). That is odd. The bookseller lost money, and its e-reader and e-book business are still being routed by Amazon.com (NASDAQ: AMZN).

In the quarter that ended on July 30, Barnes & Noble’s sales rose an extremely modest 2% to $1.4 billion. The company’s net loss was $57 million. Some investors found comfort though: “Sales through BN.com increased 37% as compared to the prior year to $198 million, with comparable sales increasing 65%.” Demand for the company’s Nook e-reader drove the improvement. But bricks-and-mortar sales fell 3% to $1 billion. E-commerce is still a very small part of Barnes & Noble’s sales, which is why investors should remain concerned about the company’s future.

Barnes & Noble cannot possibly compete with Amazon, with its e-book store and Kindle e-reader. Goldman Sachs has estimated that the Kindle has 67% of the U.S. e-reader market. Barnes & Noble’s Nook has only 22%. Several large companies, led by Sony (NYSE: SNE), are also fighting for e-reader market share.

The harsh reality is that Amazon’s sales in the past quarter were $9.9 billion, up 51%. Its net income was $191 million. Its websites are the sixth most visited in the U.S., according to Comscore. They had 97.1 million unique visitors in July. Amazon has the online traffic to fuel Kindle sales that Barnes & Noble can only dream of.

Barnes & Noble stock moved up 14% after the earnings release to $13.13. That is still well below its 52-week high of $21.06. Based on Barnes & Noble’s results, the stock does not deserve to trade any higher than it did after it posted results for the previous quarter.

Douglas A. McIntyre