Photo: Steve Kovach, Business Insider
Barnes & Noble’s stock is getting slammed this morning after it lowered guidance, and revealed it’s exploring options to spin out its digital business.The guidance is well below expectations, and the stock is off by as much as 31% this morning. And while the headline on Barnes & Noble’s press release says Nook sales are at a record high, upon closer inspection, it appears as though that business isn’t doing all that well.
Barnes & Noble says its full year fiscal 2012 revenue should come in at $7-$7.2 billion, versus analyst expectations of $7.33 billion. It also says it will record a loss of $1.40 to $1.10 per share for the year. Analysts were expecting a $0.63 loss.
It blames the change in guidance on the Nook business. It says sales of the Nook Touch were weaker than expected. It also says investment in the Nook is going to be a drag on earnings.
While all of that sounds bad, Barnes & Noble also says it’s seeing record sales for the Nook business and it’s looking at trying to spin out the business!
Nook sales were up 70% on a year over year basis for the holiday period. (The Nook Touch was behind expectations, but the Nook tablet was ahead of expectations.) Digital content sales were up 113%.
An increase of 70% sounds good, but it’s working off a very small base. And the line up has been expanded. So, it should be up. For some context, Apple’s iPad sales are expected to grow 77% for the holiday quarter on a year over year basis. The Nook, which is cheaper, can’t keep up.
Barnes & Noble expects digital content sales to be $450 million for fiscal 2012. Those sales are expected to be accelerating as the year goes, and by the end of fiscal 2012, Barnes & Noble thinks its digital sales run rate will be $700-$750 million.
What it doesn’t mention is how much money the Nook division is losing. But, since it blamed its projected losses on the Nook business, it seems safe to assume it’s not profitable.