Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


How and why is Barnes & Noble Surviving?

The age of Amazon (NASDAQ: AMZN) presents many mysteries to analysts, one of the greatest being; how is Barnes & Noble (NYSE: BKS) surviving?

All of Barnes & Noble’s rivals including Borders; and the niche bookseller Christian Family Stores, are defunct. It seems to be the only, national bookseller left which is definitely a mystery. It is easy to see how independent local bookstores with creative owners and loyal followings survive, but why is a national chain that is little more than an outlet for the publishing industry still standing?

It is hard to believe but there are still 640 Barnes & Noble stores operating in the United States. The chain is still attracting some business, possibly because it has little competition or there are a lot of luddites with a paper fetish around. Perhaps a lot of people just like to drink coffee there.

Barnes & Noble joins the Walking Dead

That survival is coming at a terrible cost according to the latest financial numbers I found. The data at ycharts indicates that Barnes & Nobles is a retail zombie, a walking corpse of a store that’s barely stumbling along.

Some indications that Barnes & Nobles is among the walking dead include:

  • Revenues of $1.933 billion on April 30, 2017; down from $1.969 billion in January 2017, and $2.013 billion in April 2016.


  • A “net income” of $22.02 million up from -$24.45 million in April 2016 and $4.842 million in January 2017.


  • A “profit margin” of -1.64% on April 30, 2017.


  • A “free cash flow” of -$35.77 million on April 30, 2017.


  • $145.24 million in cash from operations on April 30, 2017.

  • $11.99 million in cash and short-term investments at the end of the last quarter.


  • Assets of $1.933 billion on April 30, 2017.


  • A market capitalization of $551.10 million on June 27, 2017.

  • An enterprise value of $596.74 million on June 27, 2017.


  • A stock value of $7.60 a share on June 27, 2017.


All of this shows that Barnes & Noble has no value beyond its real estate. Its business is dead, leaving a rotting husk of a retailer. The only that might be sustaining the brand is sentimental attachment to brick and mortar bookstores.

Like a number of brands, Barnes & Noble has fallen prey to the retail zombie apocalypse. It keeps shuffling along only because has the heart or the guts to kill Barnes & Noble.

Is there a Future for Barnes & Noble?

All this indicates that there is only one possible future for Barnes & Noble; as part of a larger organization. The only hope the bookseller has for survival is to be acquired, much like Whole Foods Market (NASDAQ: WFM).

There is also only one logical acquirer for Barnes & Noble and that is Amazon. Amazon is already opening brick and mortar bookstores that look suspiciously like a Barnes & Noble. The Everything Store is also seeking to establish hundreds of local hubs for its pickup, and same-day delivery efforts. Barnes & Noble’s 640 locations might fit the bill on both accounts.

Being part of Amazon would also preserve something of Barnes & Noble’s unique identity. Whole Foods’ management team was right to sell out because their unique brand would have either collapsed or been gobbled up by Kroger (NYSE: KR).

Joining forces with Amazon would save Barnes & Noble by giving it the resources needed for survival. Jeff Bezos would appreciate that because he loves books and has a soft spot for brick and mortar book stores. He would also become an instant hero to hundreds of thousands of bibliophiles for “saving” a bookstore.

How Amazon can Use Barnes & Noble

A creative organization like Amazon would be able to give Barnes & Noble access to the latest technology and techniques. Such an acquisition would also give the chain access to a wide variety of products and services it currently lacks.

Barnes & Noble stores would be an ideal showroom for Amazon electronics like the Kindle, Alexia and the Fire Phone. They might also serve as service centers for Amazon products, a pickup point for Amazon orders and a drop off place for returns.

Persons that wanted to use cash to pay for Amazon orders would be able to do so at Barnes & Noble. That might generate additional revenue for the chain and keep it from being seen as a faceless monster.

Despite all that there are some reasons why Amazon might pass on Barnes & Noble. The biggest is the Federal Trade Commission (FTC), which might object to the merger of the nation’s two largest “bookstores.”

The FTC blocked the merger of Staples (NASDAQ: SPLS) and Office Depot (NASDAQ: ODP) last year. It is also trying to prevent Walgreens’ (NASDAQ: WBA) takeover of Rite Aid (NYSE: RAD). The legal hassle of fighting with the FTC might be too much of a bother for Amazon.

One thing is clear if something like Amazon; or Alibaba Holdings (NYSE: BABA), does not buy it Barnes & Noble will die. Investors need to stay far away from Barnes & Noble because it is no longer viable as a standalone company.