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Barnes & Noble's Nook Business Sees Fifty Shades of Red

Barnes & Noble's Nook Business Sees Fifty Shades of Red

Photograph by Paul Taggart/Bloomberg

Barnes & Noble (BKS)‘s products with power buttons and virtual pages have turned into horror stories. With demand for its Nooks disappearing, the New York-based company just posted a $118.6 million loss in the three months ended April 27—more than double its year-earlier loss and much worse than Wall Street expected. Now the company plans to get out of the tablet-making business entirely, though it intends to continue selling them.

Barnes & Noble’s Nook revenue dropped 34 percent since the same quarter last year, and revenue from the sales of e-books sagged by 9 percent. The company took a $18.3 million impairment charge on its tech gadgets in what is tantamount to an admission that the unprofitable Nook has ended up on the losing side of the e-book format war. (AMZN), which doesn’t release specific data on the performance of its Kindle readers, has said its e-book business grew by 70 percent last year.

“Barnes & Noble was just unable to compete with the big boys—Apple (AAPL), Amazon, Samsung (005930:KS), Google (GOOG), and others—when it came to making the necessary investments to excel in the tablet business,” said Jeremy Greenfield, editorial director of Digital Book World, a publishing trade group. It wasn’t for lack of trying: After Barnes & Noble failed to increase sales of the devices in the all-important holiday period, it tried deeply discounting the hardware in recent months and even gave away Nook e-readers to customers purchasing Nook HD+ tablets. (Imagine Apple handing over a free iPod with every iPad purchase.)

After assessing the quarterly results, Barnes & Noble decided to abandon tablet production to a third-party partner while continuing to control its own production of e-readers, devices that typically have black-and-white screens and limited Web-browsing capabilities. In terms of selling digital content, B&N executives said on a conference call this morning, those simple e-readers move a lot more product than flashier tablets. But as Kindle extends its gains, Barnes & Noble may also be losing market share to newcomer Kobo, a Toronto unit of Tokyo-based Rakuten (4755:JP). While Amazon, Apple, and Samsung duke it out for the sophisticated tablet market, Kobo’s sleek, simple e-readers have won rave reviews and a tide of business.

The dismal device and digital-book results have made Barnes & Noble’s old-fashioned dead-tree business look remarkably stable by comparison, even though the story on that front remains one of ever-shrinking sales that dropped a further 10 percent in the past quarter. Meanwhile, the company offered no updates on a plan by founder and Chairman Leonard Riggio to buy the company and take it private, which first came to light in February.

Stock is an associate editor for Twitter: @kylestock

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