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

Photograph by Paul Taggart/Bloomberg

Barnes & Noble‘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. Amazon.com, 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, Amazon, Samsung, Google, 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. 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.

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