What a weird roulette wheel of a press release from Barnes & Noble this morning. Take a spin and you’ll find that:
Nook sales are booming! They were up 70 percent over the holidays, driven by the new Nook Tablet, which apparently sold well, even though it was up against Amazon’s Kindle Fire and Apple’s iPad.
Nook sales are disappointing: No one wanted to buy the black-and-white Nook Touch.
Barnes & Noble’s digital business is booming! Content sales were up 113 percent over the holidays. By the end of its fiscal year in May, B&N figures it will have sold $450 million worth of digital stuff. That will put it on an annual run rate of at least $700 million — that’s 10 percent of last year’s overall sales.
Things are so good, in fact, that the company might spin off its Nook/digital business altogether.
But things aren’t that good: B&N lowered its guidance for every one of its 2011 fiscal year metrics, including revenue, EBITDA, and online and offline sales. It blamed the bulk of the change on those crummy Nook Touch sales, as well as additional investments it’s making. But I’m not quite sure how poor Nook Touch sales, for instance, affected revenue at its brick-and-mortar stores.
To spell that out: B&N says fiscal-year revenue will be $7.0 billion to $7.2 billion, down from an initial forecast of $7.4 billion. Store sales are expected to increase 1 percent, instead of 2 to 3 percent; Barnesandnoble.com sales will be up 40 percent to 50 percent, instead of 60 percent to 70 percent; and EBITDA will be $150 million to $180 million, instead of $210 million to $250 million. Losses, meanwhile, will balloon up to $1.10 to $1.40 a share, instead of the initial forecast of 10 cents to 50 cents a share.
Got all that?
Investors certainly have. Or at least they seem to have drilled down the guidance change — the second one the company has made in the last couple of months. They are punishing the stock this morning, sending it down 27 percent.
Meanwhile, at least one part of the release makes sense: Nook Touch misstep aside, B&N certainly seems to have a found a fast-growth digital business. And spinning off the business would (theoretically) help them solve at least one problem they’ve been grappling with recently: How do you recruit stars to a tech business in a red-hot labor market (for tech, that is), when you can’t dangle red-hot stock options in front of them?
Did you know, for instance, that B&N has a couple hundred people working for them on digital stuff at a Palo Alto outpost? It’s true! But if the New York-based company is going to make a real go of taking on Amazon, Apple, et al, it’s going to have to beef up that group significantly, and that means convincing people that there’s as much upside there as there would be at a Facebook or a Dropbox, etc. Tough sell, but breaking off from a no-growth dead-tree business would be a start.