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TMFDeej (99.47)

A really interesting article that shows why Barnes and Noble is not Blockbuster

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August 11, 2010 – Comments (17) | RELATED TICKERS: BKS

 

I don't disagree that print media is dying a slow, painful death.  I stopped in a local Border's (BGP) the other day and the place was a disaster.  Everything was laid out poorly.  There was very few consumers in there.  Tons of things were on clearance sale.  It just seemed like a ghost town.

Barnes and Noble (BKS) is better than Borders, but the many still believe that it is in big trouble as a result of industry trends. 

As many have said, eBooks are likely the way that the industry is headed.  I just pre-ordered the new Amazon Kindle myself.  I expect it to arrive some time in September, at which time I doubt that I will ever purchase a paper copy of a book again.

I just came across a really interesting article about Barnes and Noble.  In it, the author, Geoff Gannon talks about his reason for buying stock in the company at $15/share.  I don't think that there's enough of a margin of safety in terms of liquidation value here for me to pick this stock in CAPS, let alone in real life, but the author's thesis that two major investors who control the majority of the company's shares will pay a premium to obtain shares from other shareholders to get enough stock to support their bids for the company is an interesting one.

Print Is Dead: So Why Am I Buying Barnes & Noble Stock?

I'd love to hear others thoughts on Barnes and Noble or eBooks in general.  Do you have a Kindle, an iPad, or a Nook?  Do you like them?  

I personally went with the Kindle because it's smaller than the iPad, its battery lasts longer, it isn't back-lit (I stare at enough monitors all day and I'd like to be able to read it in the sun), its battery charge supposedly lasts for a month, and it only costs $139 versus five hundo for the Pad.  I already have an iPhone and a laptop if I want to surf the web or watch movies, why do I need a third thing in the middle of those two to do that.  I just want to be able to read books more cheaply and easily than I am able to right now.

Deej 

17 Comments – Post Your Own

#1) On August 11, 2010 at 1:10 PM, alstry (35.69) wrote:

Do you really think your politicians can keep BORROWING over $1.6 Trillion dollars each year.......MONEY THAT YOU ARE JOINTLY AND SEVERALLY LIABLE TO PAYBACK........and the system not run out of money and collapse?

Housing wasn't completely cut off and government is still borrowing and spending massively and residential construction is down 85% and autos are down 40%.....what do you really think is going to happen when government gets cut off....everybody go shop at Barnes and Noble?

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#2) On August 11, 2010 at 1:26 PM, SockMarket (86.70) wrote:

personally I am one of the few people who enjoys a paper book far more than a kindle (or iPad, which I cannot stand reading on). I have never used a Nook. It is well worth it to pay an extra $5-15 a book to get the paper version IMO.

That said I find this guy's pitch for Barnes and Noble a bit weak. If most people believe that print is dead why would either of the two people in question be desperate enough to control the company that they would want to jump in strongly enough to drive the price up? It seems to me that if they want the company they would simply buy on the way down.

" But Barnes & Noble’s best takeover defense was removed in September 2009, a couple months before the takeover battle began in earnest"

Assuming everything started on Jan. 1 2010 they have bought 71% of (then) oustanding shares since then and the stock has gone down 23% in the process. If one person were to make a run while the other stood idly by 44% of currently outstanding shares would be bought. If one was to wind up with 7m more shares and another with 7.5m more 85% of the outstanding shares would be bought. If 71% saw the stock drop by over 20% I find it hard to believe 85% would send it skyrocketing.

Unless there is a race to the finish here I doubt BKS will go up as a result of this (until an actual buyout that is) and if things don't work out you are left holding the bag, and a crappy stock.

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#3) On August 11, 2010 at 1:29 PM, SockMarket (86.70) wrote:

alstry,

what would it take for you to stay on topic and not go off shouting about how the world is going to fall apart?

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#4) On August 11, 2010 at 1:31 PM, TMFDeej (99.47) wrote:

Alsty, perhaps you didn't read this blog post or the article that I provided a link to.  The premise of this post is that Barnes and Noble might make a solid short-term trade because a number of interested parties are fighting over a limited number of available shares.

Many of the successful trades that I have made in CAPS lately attempt to take advantage of short-term trades. Special situation trades like this have worked better in CAPS and real-life lately than shorting a myriad of ETFs that one doesn't seem to understand.  I am not personally playing the Barnes and Noble trade, but one would think that this story will play itself out well before your flesh-eating zombies attack.

Deej

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#5) On August 11, 2010 at 1:39 PM, TMFDeej (99.47) wrote:

Hi Daniel.  I definitely see your point about enjoying paper copies of books.  My eyes get tired of staring at monitors all day long.  At night or on the weekends when I do find a few spare seconds to read, the last thing I want to do is look at another back-lit screen.  That's one of the reasons that I went with the Kindle.  Besides, my office bookshelves are about as full of paper books as they can get :).

Will I like it?  I'm not sure.  I don't have much experience with eBooks other than looking at them for a few brief seconds.

I agree with you about the investment case for BKS.  It certainly is not strong enough for me to play along.  If these potential buyouts do fall apart, one is left with overpriced stock in a dying retailer.  Its not like the company is trading for less than its liquidation value or cash on the books like a lot of the distressed situations that I look for are.

Having said that, I certainly wouldn't want to short BKS either given the presence of two wealthy potential suiters, limited available shares, and high short interest.

Thanks for sharing your, on-topic ;), thoughts. 

Deej

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#6) On August 11, 2010 at 1:50 PM, alstry (35.69) wrote:

IT IS NOT FLESE EATING ZOMBIES....

It is simply that the only reason we have an economy right now is government and Wall Street are borrowing trillions of dollars each year and spending money they don't have.....

just like homeowners borrowed trillions of dollars a few years ago and spent money they didn't have driving the economy....

Soon, government will be cut off of credit......and the spending will stop....and the only one's left to bail out government will be the homeowners......

who now don't have any money......

and when that occurs, just like it occured to housing....it will be the only issue relevent to investing....and NOTHING else will matter.....

it ain't hard....when the money runs out....and you can't borrow any more....the system is zombulated.

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#7) On August 11, 2010 at 2:27 PM, catoismymotor (66.27) wrote:

Would somebody please put Alstry back in his cage? He's leaving droppings all over the place!

I'm with Daniel. His first paragraph sums up my general feelings about ebooks. Plus I have a few concerns about airport security screwing it up with X-Rays, true battery life, color images. Like you I don't want to drop hundreds of dollars on an iPad just because it offers the possibility of incorporating color photos and videos into the text.

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#8) On August 11, 2010 at 2:51 PM, SockMarket (86.70) wrote:

deej,

let me know how the kindle experiment goes.

I would agree on the shorting bit, although if the major shareholders were absent I would be very, very tempted. 

 

cato,

what do the x-rays do to it? 

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#9) On August 11, 2010 at 4:18 PM, TMFDeej (99.47) wrote:

Will Do Daniel.  I wonder how long it's going to be before my back-ordered Kindle actually ship.

Deej 

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#10) On August 11, 2010 at 4:23 PM, catoismymotor (66.27) wrote:

X-Rays can erase memory cards of digital cameras and MP3 players if the machines being used are not properly calibrated. That fact has me concerned about the effect of such radiation on an eBook. I would not be as concerned if the memory card could be removed and carried on my person apart from the eBook device. When I travel by air with my camera gear I have every memory card on my person in protective cases that I keep on my person, can place in the tray with my watch and keys. I do that so I can limit or eliminate their exposure to X-Rays.

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#11) On August 11, 2010 at 7:18 PM, SockMarket (86.70) wrote:

Deej,

hopefully not too long, and hopefully it works when it gets there. 

 

cato,

I am not a huge tech guy but I seem to remember that flash memory is different from ordinary, solid state memory. I would hazard a guess that the x-rays mess with flash memory and where it hits can probably re-write (or reset) the binary (I assume this is how the code files on flash drives) where it hits it. Since the Kindle uses flash that would make good sense. 

I never really thought about it, and I guess I have been lucky when traveling, but it is a good thing to know. Thanks.

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#12) On August 11, 2010 at 10:35 PM, joshbk (74.66) wrote:

I personally like B&N, the stores are well-managed, & their physical lay-out is very intelligent. I enjoy their late hours, and like their often central locations, such as malls and city-centers.

From a business perspective, however, I agree that they're a poor investment. Their going into the eBook market was a poor decision. Aside from cash and publisher contracts, what do they have that would give them a sizable advantage in eBooks? 

Instead, they need to work from what already they have: Large stores in central (sometimes expensive) locations; large stocks of books; individual items that likely cost less than individual items sold in their neighboring stores; sections that should satisfy everyone in the family, from the generalist to the specialist; a decent & functioning management structure, set up for store retail; in-house publications of old and classic books; music/DVD sections larger than your average small bookstore; deals with Starbucks; and top-notch branding and atmosphere.

Retail books may not be the best industry - but unless it's completely going down the tube, that's a lot to work with.

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#13) On August 11, 2010 at 11:56 PM, tekennedy (74.65) wrote:

To add a medium term reason to go long: the continued decline of Borders. Although I certainly agree that the shift is going away from traditional books that doesn't definatively destroy the company. The way I view it, this technological shift changes the profitable equilibrium as far as number of bookstores. There is a possibility that borders bears the brunt of this longer term but it could very well be a more drastic shift and B&N may need to take losses for a prolonged period of time until profitability is reached. There is no tangible margin of safety long or short.

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#14) On August 12, 2010 at 8:15 PM, HarryCarysGhost (99.78) wrote:

IT IS NOT FLESE EATING ZOMBIES....

Whew,what a relief.

Flesh eating zombies scare the crap out of me.

But if alstry meant FLEAS EATING ZOMBIES well, who likes fleas. Certainly not my dog.

Now if he meant FLEECE EATING ZOMBIES that is a bit more disconcerting, but as long as I'm not wearing the fleece at the time that would be fine. That stuff does tend too itch ;)

As far as (BKS) goes. I would'nt be investing even as a short trade. I could see myself buying a kindle in the future, but as it stands now I either get my books from the library, or if it's an investment book that I will reference over and over again I ask for it at Christmas. 

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#15) On August 12, 2010 at 8:29 PM, HarryCarysGhost (99.78) wrote:

or if it's an investment book that I will reference over and over again I ask for it at Christmas. 

Which is bought at Amazon.com.

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#16) On August 14, 2010 at 3:35 AM, livinghour (< 20) wrote:

I think Barnes & Noble and other large bookstores can do well if they serve as really knowledgable filters of what is good and what is hot for their cutomers. They also need to leverage technology more, like intstallking a POD printer in their stores and immediately print and bind a book that someone browses the ebook for and wants the print copy. They could hugely expand inventory that way while reducing shelf space.

 U. Tapila

http://www.livinghour.org

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#17) On August 17, 2010 at 10:45 PM, dragonLZ (99.34) wrote:

I think (based on a few of "my indicators") that BKS will be a $25 stock again (approx. 60% higher than today's $15.35 price).

I'm not going to try to guess when (in 6, 12, or 18 months), but I think many people will be surprised how soon is that going to happen.

Just my opinion.

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