Barnes & Noble may spin off Nook business

With lowered full-year earnings forecast, bookseller considering separation of Nook business to capitalize on devices' increased sales and demand for digital content.
Written by Jamie Yap, Contributor

On the back of increased sales over the December holidays, Barnes & Noble says it is considering spinning off its Nook e-reader business from its core book retail business and tap the growing market for digital content. The move comes as the company also slashed its earnings forecasts for the year.

Evaluating the "strategic separation of the large and rapidly growing Nook digital business" is expected to be complete by the end of this fiscal year, which may see Nook become a separate operating segment, the company said in a statement Thursday. However, it added that there is "no assurance" this review will result in a separation.

Barnes & Noble CEO William Lynch said: "We see substantial value in what we've built with our Nook business in only two years, and we believe it's the right time to investigate our options to unlock that value."

The company said its Nook business saw record holiday sales in both devices and digital content during the nine-week holiday period ending Dec. 31, 2011. Digital content sales, referring to digital books, digital newsstands and apps, jumped 113 percent.

Nook unit sales, including the Nook Simple Touch and Nook Color e-readers as well as the Nook tablet, increased 70 percent over the same period last year, although the company did point out that sales of the tablet exceeded expectations while that of the Nook Simple Touch lagged expectations.

Slashes earnings forecasts
In the same statement, Barnes & Noble also reduced its earnings forecast for the year, saying it now expects full-year earnings before interest, taxes, depreciation and amortization to be in a range of US$150 million to US$180 million. This "change in guidance" was due primarily to a shortfall in the expected sales of Nook Simple Touch, as well as additional investments in growing the Nook business, such as advertising to support new products and international expansion in the back half of the year, it added.

Only a month ago, Barnes & Noble said its earning forecast would be at the low end of US$210 million to US$250 million, the Associated Press reported Thursday. Lynch told the news wire that the Nook review was an attempt to provide more visibility into Nook operations, which the company felt were not valued as highly as they should be by investors and analysts.

"We want to unlock value and shine a bright light on that business," he said, adding that Barnes & Noble was looking at a "range of options" for its Nook business.

Observers quoted in the AP report, however, were cynical about the decision. Michael Norris, senior trade analyst from Simba Information, said: "Separating Nook from the Barnes & Noble brand would be a huge mistake. A lot of people who buy e-books buy physical books as well. Do they really want to tamper with that kind of marriage?"

Barnes & Noble rival, Amazon, last month reported that 1 million Kindle devices were sold per week throughout the month of December. The e-tailer giant first unveiled the US$199 Kindle Fire tablet in September last year and began shipping the product on Nov. 15.

Barnes & Noble's announcement of a potential Nook separation comes shortly after The Wall Street Journal reported on Wednesday that the company was looking to sell off its publishing division, Sterling Publishing, to recast itself as a technology company and focus on its Nook devices.

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