Call it amicable separation – sometimes this year or next, Barnes & Noble and Nook Media will split up, becoming two separate publicly traded companies. Barnes & Noble packaged the announcement along with their financial results for fiscal year 2014.
According to the announcement, Barnes & Noble is splitting off Nook Media in order to maximize value for shareholders—they think the two divisions would both be better off being run independently. Independence would have its limits—post-split, there’s nothing that says Barnes & Noble and Nook Media need to work together, but they’ll surely cooperate into the foreseeable future.
Crystal balls are hard to come by, but one strong implication here seems to be that Barnes & Noble would like to make Nook Media a more attractive candidate for buyout offers. As much as we all love books, no corporate behemoth is going to be interested in getting a chain of struggling bookstores dropped into its lap when all it wants is a competitor in the eReader market. Nook Media all by its lonesome doesn’t carry the baggage of the brick and mortar stores, which is probably why shareholders have been calling for this move for some time.
That said, a Nook Media buyout is still an iffy proposition. Although Barnes & Noble had their best earnings year in four years during fiscal year 2014 (which for them ended on May 3), revenue from the Nook division was far from convincing. Revenues from the Nook during fiscal year 2014 and fiscal year 2014 Q4 dropped significantly, by 35.2 percent and 25 percent, respectively. The Nook division, like last year, operated at a loss, but overall performed better this year because of a drop in operating costs.
The decline in revenues is no doubt a red flag for investors, but shares of Barnes & Noble have continued to tick upwards in the wake of the confirmation of the plans to split. And, while caution is certainly warranted, optimism is, too. Barnes & Noble just recently paired Nook up with Samsung, merging the Samsung Galaxy Tab 4 with the Nook version of Android and the Nook store. The move could give the Nook, which has been struggling in competition with the Amazon Kindle, a higher profile, and could boost sales.
The retail chain struggled somewhat, with both revenues and earnings for FY2014 dropping by roughly 6 percent, while Barnes & Noble’s college operations remained more or less flat. Overall, earnings for FY2014 jumped from $7.1 million to $251 million, but much of that is attributable to the reigning in of Nook costs, which Barnes & Noble chalks up to “lower marketing costs and cost rationalization efforts.”
So, what does it all mean? If you’re interested, keep a close eye on how the Galaxy Tab 4 Nook does. If sales are strong, it wouldn’t be too surprising if the newly independent Nook Media gets bought out soon after leaving the nest. As for the venerable old Barnes & Noble stores—well, they’re not going anywhere anytime soon, but go enjoy them now all the same.