B&N may spin off Nook business, confirms overseas drive

B&N may spin off Nook business, confirms overseas drive

US bookseller Barnes & Noble has said that it is considering separating its Nook business from its traditional book retailing operations in order to "unlock value" from that business not represented in its share price. It has also confirmed the news, first reported in The Bookseller in November, that it is looking to take the Nook overseas and is in discussions with "strategic partners including publishers, retailers, and technology companies".

The statements came as the company reported sales of its Nook e-reading devices increased 70% year-on-year over the nine-week festive period ending 31st December 2011, with sales of digital content increasing by 113% over the same period. However, while B&N said sales of NOOK Tablet exceeded expectations, sales of its e-ink device the NOOK Simple Touch "lagged expectations", indicating a stronger customer preference for color devices. The company said it had "over-anticipated the growth in consumer demand for single purpose black-and-white reading devices this holiday" and as a result reduced its sales and profits guidance to investors for the full-year.

Chief executive officer William Lynch told The Bookseller in November that it planned to take the Nook platform overseas, and it now says that it is in discussions with "strategic partners including publishers, retailers, and technology companies in international markets that may lead to expansion of the Nook business abroad". The announcement suggests that a deal with Waterstone's is now close.

The company also reported that it is pursuing "strategic exploratory work to separate the Nook business". Chief executive officer 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."

Barnes & Noble's shares are priced at $11, valuing the business at about $650m. Late last year the Japanese company Rakuten put a $315m value on Kobo, which is significantly smaller than either B&N or its Nook division, and which has never made a profit. B&N's share price actually fell on the news, and the company admitted that there was "no assurance that the review of a potential separation of the NOOK digital business will result in a separation" and that there was no "timetable for the review". 

Lynch said the Nook business should represent $1.5bn in comparable sales this financial year. "Between continued projected growth in the U.S., and the opportunity for NOOK internationally in the next 12 months, we expect the business to continue to scale rapidly for the foreseeable future.”

The consolidated Nook business, including sales of digital content, devices and accessories, increased 43% during the period to $448m, on a comparable sales basis. Sales in its physical stores increased 2.5% over the same period last year, to $1.2bn, with physical book sales growing year-on-year for the first time in five years, increasing by 4%.

B&N said that it expects digital content sales to be approximately $450m for the 2012 financial year, with BA.com sales increasing 43% year-on-year to $327m over the most recent nine-week holiday period, "driven by continued growth of the Nook business, offset by a decline in online physical product sales".