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Barnes & Noble Balance Sheet Bust: True Book Value May Be Below $1

Jun. 05, 2019 4:43 PM ETBarnes & Noble, Inc. (BKS)AMZN20 Comments
Max Greve profile picture
Max Greve


  • Evidence is building that lack of ebook execution is detrimental to a print book operation.
  • Barnes & Noble's digital efforts are severely lacking and this has started to bleed over to its print sales, where it continues to fall further and further behind Amazon.
  • I am unconvinced that Barnes & Noble's liquidation value exceeds its share price at even these price levels.
  • Most of Barnes & Noble's book value is in goodwill and trade name, which I do not believe can effectively be monetized.
  • It is also possible it would have to write down its largest asset, book inventory, in order to liquidate it, making its liquidation value as low as $0.13.

Barnes & Noble (NYSE:BKS) shares have now fallen below $5 after earlier rising as high as $8 per share. As the first company to really feel the searing competition of the Amazon (AMZN) effect - along with defunct competitor Borders - B&N’s decline isn’t so surprising. But it can almost be easy to forget as Amazon conquers ever-more new worlds that there is one major competitor still standing in its original field of books.

With B&N’s $0.15 quarterly dividend intact for now, yields are approaching close to 13% on an annual basis. The question is whether these yields represent value - or a value trap.

A Wrong Turn

The book industry for some time has been trending towards its digital future. The primary difference between Amazon and B&N for the past few years has no longer been how they distribute physical books, online or in stores, but rather how they distribute books, physically or digitally. Amazon has led the way in digital with its Kindle platform, offering both cheap hardware and low-cost ebooks, published increasingly by independent authors outside the established publishing houses.

Barnes & Noble, meanwhile, went just the opposite way, recommitting to its symbiosis with the physical book market. It raised prices on ebooks to make them less competitive with print books, and at first it seemed to work. Although ebook revenues fell, overall revenues rose as physical book sales saw a big bounce in 2015.

It also continued to base its business around the Big Five publishers. As of its most recent Annual Report (June 2018), Penguin Random House accounts for 27% of all Barnes & Noble’s sales on its own, and the next four publishers combined account for another 40%.

Coming Off The Sugar High

B&N has hit renewed difficulty in recent years, however. Like a sugar high, the

This article was written by

Max Greve profile picture
Max Greve is a graduate of Northwestern University with a quadruple major in History, Economics, Political Science, and International Studies. Max is a full-time writer and in addition to stock market trends also writes articles on government, current events, macroeconomic trends, and last but not least, the ongoing inefficiencies of professional sports.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in BKS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

Dividend Seeker profile picture
Ouch. Although, in fairness, I doubt anyone saw this coming.
It has been a foregone conclusion that a sale was inevitable. Besides the massive dividend, there was no reason other than a buy out to hold it.
Fine prognosis, Elliot seems to disagree apparently.
Just come out and say it, they will be gone by Christmas, like Toys R Us.
toys r us is supposed to be back by this Christmas. true story.
Really! I’d be shocked. Are you aware of how badly that company was managed in its last few years? It was an absolute shame; what I read.
Camlogry profile picture
Shouldve seen the take private coming. Waterstone and WH Smith in the UK. same story.
bayalltheway profile picture
Congrats fool...
They had a chance to beat AMZN to the punch with Nook and they blew it. We own a bunch of $79 Kindles in our house and I can't remember the last time we went to a big box book store; probably been 5+ years. since the kids were little and we'd sit in the store and read to them.

Add GME to your short list as well. BKS will be ending the div and going to austerity costing just like them, and probably pretty soon.

The big box model for almost everything is dead. Margins squeezed by on-line competitors can't support all that excess sq footage. Retailers better have a unique value proposition, or they have to run incredibly lean and mean to compete on price.
Good luck with your short position. While I totally agree that the company failed its shareholders and destroyed all residual value, I would caution you to be careful. It’s a unique business that when managed properly can lead to a huge profit. The dividend is not realistic but I think board left it while looking at potential buyout offers- overall smart move. A short position would make sense but a buyout would be catastrophic!
Max Greve profile picture
Hey James,

Honestly still mulling it over. Kicking myself a little should have done it at $8 but I didn't for the same reason I'm a little nervous to do it now - the market can stay irrational longer than I can stay solvent, as they say.

The only new thing for me is the sheer scope of the declines, and the refusal of the Big Five to countenance any sort of price cuts. The industry just doesn't seem to be moving to meet the independent, ebook author challenge, and I'm starting to wonder if it ever will.
Very well said. Totally agree but I had concerns that Riggio eventually will try to take it private and unlock the true value of this business. Imagine a partnership with amazon or apple or alphabet! This business with all the key locations it has is priceless. Riggio wants to keep it limping but would not want it die or recover. Till eventually all other stakeholders are tired, depleted and exhausted...
tinbox profile picture
With all due respect, Mr Riggio is 78 years old and has hired advisors to find a buyer for the company. Assertions about some kind of nefarious plans are not supported by any evidence whatsoever.
Further, the idea that their locations are ideal is also suspect. B&N is trying to move to smaller, cheaper spaces as their leases expire.
tinbox profile picture
If this article were written 6 months ago when BKS was trading over $7 and the thesis was that there is relatively little upside from $7, then , ok fine. But with BKS at $4.50 it doesn't add to the discussion to make up metrics like "true book value" based mostly on the author's intuition. I have never seen anyone anywhere say they thought BKS shares were a bargain because they would appreciate in a liquidation.

It isn't news that Amazon sells books. It isn't news that Amazon doesn't seem to ever want to turn a profit on books. This is all at least 10 years old--that's back when Amazon was paying publishers $13 for ebooks and selling them $9.99 on Kindles that they also sold at a loss. The market has changed since then, but Amazon's willingness to lose money probably has not. This is a huge problem for B&N, yes. That's why the stock is cheap. Everyone knows this.

Tell us if WH Smith will come back to the bargaining table. Tell us if the USPS will continue to operate as an Amazon subsidiary. Tell us if Amazon will be restrained by antitrust litigation. Tell us if Riggio can drum up another suitor...tell us something we don't know.
Max Greve profile picture
In hindsight I do wonder if a short of BKS was an obvious move that I missed, but the old adage about market irrationality vs your liquidity always rings true. I did not know exactly when BKS would fall.

What prompted me to write the article was the return of suggestions - far less common when BKS was at $8 - that its book value provided support at these levels. During my research on BKS I discovered that simply wasn't right and I wanted to say so.

On your questions: Smith might buy if it becomes cheap enough, but the thrust of my analysis is that print operations without ebook operations no longer seem capable of sustaining themselves on the large corporate level, so perhaps you'll find that useful. Having a real barometer of independent author activity has really enhanced our understanding of the market, or at least it has mine.

USPS....meh. I've never been entirely convinced that their deal with Amazon is a blatantly unfair one. Mostly Amazon gets good rates because they deliver massive volume that B&N can't match, and USPS is entirely separate from the digital question, anyway.

The real issue here is that 67% of B&N's business comes from the Big Five Publishers. On Amazon's digital side that number - even solely on paid purchases - is about 20%, we think. B&N has five publishers who basically ARE the B&N business and who simply refuse to cut prices, no matter how much competition independent authors provide.
Hewitt Heiserman profile picture
Nice article, Max. You didn't have time for a fifth major? :)
Max Greve profile picture
Hey Hewitt,

Thanks for the kind word. Four is the limit. After I graduated, they changed the limit to three, but I never found out if that was because of me or not. :)

Based on your methodology, what is Amazon worth?
tinbox profile picture
I had the same thought. There is a leap of (ill)logic in going from what B&N would be worth in a hypothetical bankruptcy to the idea that they will go bankrupt.
Max Greve profile picture
I agree Amazon to B&N is not an apples to apples comparison, but I'd argue that a company growing sales at 25% per year - and growing GMV a good deal faster - is not really comparable to a mature, even declining business. Amazon could generate profit if it chose to scale back investment. B&N desperately wants free cash flow, and can't seem to get any.

At any rate, my argument is simply that there is no liquidation value to B&N, so no one should buy on that basis. To buy you'd have to believe B&N is about to stage a turnaround. But it can't turnaround until the Big Five agree to cut prices, and it just seems if they were going to do that they would have done it by now.
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