Barnes & Noble: Nook, e-book sales accelerating

Barnes & Noble said that its digital book market share now tops the 17 percent it enjoys in the physical book market.

Barnes & Noble said that its digital book market share now tops the 17 percent it enjoys in the physical book market.

In its earnings report Tuesday, Barnes & Noble talked up the success of the Nook and its e-book sales. The company said the following:

  • Barnes & Noble's e-book market share its higher than its physical book share, which CEO William Lynch put at 17 percent a few months ago.
  • E-book sales are accelerating every week, "following the trajectory of Nook sales."
  • Customers with Nook devices have increased their spending by 20 percent.
  • Twenty-five percent of all Nook customers are new to the BN.com Web site.

Like Amazon, Barnes & Noble wasn't coughing up any hard sales data, but the company appears to be handling a digital transition well. Barnes & Noble sales in the first quarter were up 21 percent from a year ago to $1.4 billion. Barnesandnoble.com sales were up 42 percent from a year ago to $145 million.

However, Barnes & Noble is losing money. Excluding legal costs related to a shareholder spat, Barnes & Noble lost $1.02 a share. Lynch said the company is "allocating significant financial resources to strengthen its digital businesses in fiscal 2011."

That investment is why Barnes & Noble is angling to go private.

At its investor day in late June, Lynch gave a lot of color on the e-book market. Here's what he had to say:

Digital also presents incremental opportunities for us in the way of share gains and underpenetrated categories. As an example, while we have 17% share of the overall book market, we only have a 2% share in the sizeable romance category. Much of that business is done in mass merchant drug channels with their rows of romance books. We've all seen them. We project that we already have over 18% of the romance eBook market, opening up a new category business for Barnes & Noble we've never participated in a big way before.

As these three big markets of trade books, textbooks and newsstand grow digitally, we see a $15 billion market opportunity emerging in the US for us within three to four years. Physical book sales today are diffused across thousands of retailers and numerous channels of retail.

Book superstores like Barnes & Noble, independent booksellers, mass merchandisers like Target, discounters like Costco, and online retailers such as Overstock, we project there'll be greatly fewer companies retailing eBooks, eTextbooks and digital newsstand products than the fragmented physical book market. In fact, we believe there'll be three to four companies maximum retailing eBooks in the US.

As digital, books grow, we gain share by being one of these leading digital retailers selling eBooks. Our expectation is that we'll have approximately 25% of the digital market for eBooks, eTextbook and digital newsstand in total by 2013. This presents anywhere from a $3 billion to $5 billion revenue opportunity for the Company based on our projections of the overall market.

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