+1

Well, now there's even moar value.

(protip: don't buy dying retailers because you're essentially buying Blockbuster)

seems like there are too many what ifs for a price that isnt that great. Seems like the model is to probably break even or sell the nooks as a loss to in the end make money on the book business? But amazon has spent years refining and improving their store, while the NOOK store still sucks. At this point you need to be better then amazon to pull away customers there, which seems pretty hard.
Im not sure how you can seperate the NOOK business from the rest of it. Unless you close it down. Because you also pull the DRM book business from barnes and noble to the new NOOK spinoff. How do you know how much that is?

And whats to say that books wont be pirated soon like music and movies? Its already pretty easy to pirate an ebook and put it on your kindle.

Lots of what ifs here and it doesnt seem to be that dirt cheap?

oh and why dont they close their nook business right now and focus on somehow differentiating their online book store? And just market it as an app for the most popular tablets? I supose its pretty hard customizing all the ebooks for the different type of ipads? They already had problems doing just this for the NOOK.

I'm convinced that the people buying shares of BKS haven't stepped into the stores lately.

30% of shelf space is now dedicated to children's toys, calendars, and random tchotchkes. It reminds me of Blockbuster when they were selling As Seen on TV heel cream.

And if you've had the pleasure of trying to buy a book you see on Barnes & Noble's website but not seen in stores? Won't happen (they still don't ship to store for that). So you're paying 35%+ more than Amazon for a book you can't even get. And with shelf space decreasing that is becoming more common.

ya bestbuy stock has done terrible over the past year, dumb dying retailers.

bks looks cheap. my buy point is 13.50 then im in.

http://news.cnet.com/8301-1023_3-575...color-tablets/

They are keeping the NOOK and lanuching a new one, on top of which the chairman isn't going to spin off the business. Isn't that going to ruin the thesis?

Thanks for the correction, as a noob this is something I completely missed!

I highly recommend anyone interested in this one to listen to the earnings call from today. Things got pretty heated (by earnings call standards) with some of the analysts calling in. Several analysts talking about wanting management to help shareholders reap the benefits of the cashflow being generated by the Retail and College segments (the analyst from Coyote Capital quoted an estimate of $300m in free cash flow for the retail segment this year).

I was really surprised how the CEO rigorously defended the NOOK and at one point went on some rant about how the NOOK employees in Silicon Valley don't deserve to lose their jobs. He also blamed a lot of the NOOK losses on inaccurate demand forecasts. The NOOK business reported ($55m) in EBITDA this quarter.

On another note, Retail segment same store sales declined 10% and EBITDA declined 15% in the quarter. Excluding the impact of the Twillight and Hunger Games releases last year, same store sales declined 3%.

The founder announced that he was no longer pursuing a buyout bid for the Retail segment. This combined with the announcement that the company would continue pursuing the NOOK segment has me confused. Why did he abandon his buyout of the retail division and then issue a statement in support of the NOOK business? Wasn't his dissatisfaction with the NOOK business the reason he pursued a buyout in the first place?

1. Was he unable to get financing?
2. Is he comfortable that the NOOK division will be able to stem their losses?
3. Is there a big announcement/change brewing at BKS that he felt content letting this play out?
4. Was he scared off by the sales declines in the retail segment?

Could you expand on your thought process on why you picked $13.50 as your threshold?

but what makes you think they wont keep burning all the book store money with NOOK? Seems like a pretty bad business, and the CEO apparantly doesnt want to spin it off or give it up. As that probably doesnt make sense as the college and NOOK business seem to be pretty intertwined. I think amazon doesnt make any money on the kindle business, and they also offer cheaper and more books?

Also best buy is trading 4x book value now and they are losing money. seems like they went from fairly valued to overvalued? Or is there some big cost cut coming in soon there that causes them to make money again?

all true but as BC pointed out you should listen to the conference call. The only thing BC got wrong was that those weren't analysts on the call getting mad (analysts kowtow to mgmt on public conference calls generally), it was buy side institutions. eventually those institutions will band together with an activist investor and turf the board.

+ Riggio will eventually make another bid when the stock gets cheap enough. You have an implicit put here.

in reference to best buy, you are confusing earnings with cash generation. eps is mostly meaningless these days.

stock was at 14.50 when they started talking about continuing to fund the nook on the cc. I figure it needs to drop a good amount further to adjust for that. Might happen tomorrow. Also ev/ebitda is down to 2.75x there which gives me a good margin of safety to what I think its worth (20$). and I like round numbers.

interesting didnt see that angle.

About best buy, their equity seems to be declining tho? I didnt really look closely tho.

Getting closer to this entry point.. in related news the top exec sold like 2/3rd his shares.

Ahnuld are you in yet? What are your thoughts on buying the $10 or $12 strike LEAPs here?

yea I bought it at 13.46 yesterday. 1/2 position, might go full depending on what happens.

I dont like leaps, would rather just buy the stock outright since your upside is probably capped to 20$ and your downside to 10$. selling puts may make sense though

I was lucky enough to read Jana's post on VIC when it came out and got involved, and sold immediately on the MSFT deal. Isn't it odd that Jana partners never got back in, and in fact ended up selling much of their stake around $12-13 last year (even after some of their thesis played out/)

It is clear that if BKS can sell Nook Co. for a valuation close to where MSFT and Pearson invested, you hit a Homerun. Here you get a double. Also on the plus side, I think you have publishers wanting BKS to survive and thrive

For those of you that are long BKS how do you get over the following negatives:
Leonardo Riggio is out for himself (and not in the way that benefits all shareholders despite being himself a large shareholder) -- read burkle lawsuit, see how he sold college business to bks and the details related to this, self dealing in real estate and BKS.

Last year's retail ebitda is inflated due hunger games + 50 shades of grey. What is normalized ebitda for the bookstores, and what is the real rate of decline?

Finally, if you can't separate Nook Co, BKS is still competing with Amazon and unlikely improve their competitive position. IF they were to eliminate the loss generating Nook -- would that dramatically hurt their retail business?

Good post.

Sorry if these numbers are rough.

750M market cap, Retail 300M EBITDA (declines something like 5%/year), College 100M EBITDA (down less than 5%/year) , nook 150M loss (who the f knows?). Thats roughly what I think this year, beyond looks like. My NOOK loss does not factor in the MSFT payment.

It's cheap even if nothing happens, but I think they are under a ton of pressure to do something. I think a share buyback is likely. It's very unlikely they are able to sell NOOK where MSFT/pearson invested. Both those companies got something in addition to equity by doing those deals so it's not really relevant what they paid IMO, beyond figuring out the cash infusion/sharecount. Not really sure why MSFT or Pearson would be interested in buying NOOK.

Its ugly but it's generating too much cash. They are not going to set another 300M on fire this year with NOOK. If you listen to Riggio at the annual meeting it seemed pretty clear something would happen. Also a chance some bold activist takes another stand. Also a chance PE or Malone buy it.

I don't think Retail EBITDA takes too much of a bit without NOOK. Good thing to think about though.

Ahnuld did you sell here? Over $21 today, up 55% from your recommended entry point.

yeah I still hold the stock I bought at $13.50. gonna sell around 22

also something not brought up in this thread:

the college bookstore division is held within nook media division and bks only owns 78% of that division. so when looking at sum of the parts need to take that into account

Certainly an interesting development in this story with the announcement that BKS would be spinning off their Nook Media segment (College + Nook) by the end of the of Q1 FY15.

Current Stock Price: $21.65
Fully Diluted shares: 71m
Market Cap: $1,537b
Cash: $489m
Debt: $127m
EV: $1,175m

The retail segment has done $300m in EBITDA thru the first three quarters of the year and will probably finish the year around $360m in EBITDA and $300m in FCF.

A 25% FCF yield on the retail segment and then you are given the Nook/College spinoff for free.

I haven't been following BKS super close lately but this most recent news is a significant event for this original thesis.

they reported yesterday. retail did 356mm in ebitda.

My numbers say this should be a 31$ stock. 7x ebitda for the 78% of college bks owns is $9 a share. 0 for nook. Give retail a 5x multiple and its $22 a share. Ill sell at 30.

I topped up for some clients who were light yesterday afternoon at 21.25. cant believe it was trading there given the news.

CNBC - Barnes and Noble Cuts Staff After Dismal Holiday Season

Withering on the vine.