Last week, Amazon (AMZN) announced a new line of Kindles. In addition to releasing e-readers it released its new tablet, the Kindle Fire. Many of have been talking about how the Fire will take market share away from Apple (AAPL). Although this is reasonable, Apple should not be worried about Amazon, even though its tablet is almost $300 cheaper than an iPad 2.
I believe the real company that should be concerned is Barnes & Noble (BKS). It seems many investors are already bailing and the stock price has taken a huge hit since the announcement. Barnes & Noble is popular for its Nook e-reader, but with the introduction of Amazon's lighter and cheaper $79 Kindle, Barnes & Noble may take a huge hit on the margins. Borders Group (BGPIQ.PK) announced bankruptcy recently after it had a tough time remaining competitive. Barnes & Noble has also been experiencing losses.
The company has been profitable for ONLY two out of the last eight quarters. Not to mention this company pays an 8.5% dividend and based on its cash flow, it may be slashed soon.
The market is saying that this new line of Kindles will have a negative impact on Barnes & Noble's earnings. It may not be farfetched to believe that BKS could actually follow the path of its former competitor, Borders Group, unless it is able to innovate or find a way to compete in the e-reader market. One last major point to note is that Barnes & Noble has been increasing its debt load and may be using these funds to pay a dividend as the company's free cash flow is not enough to cover the payments. I recommend investors to take a hard look into this company and its operations. Barnes & Noble would be a great short candidate as any dividend cut would cause yield-seeking investors to bail.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
