Barnes & Noble Earnings Keep BKS Stock Rally Alive — But Don’t Read Into It

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Let’s be honest, folks. Barnes & Noble (BKS) is the last of a dying breed. Like the haberdashery and the overhead projector, physical bookstores are a concept that future generations just won’t be able to relate to.

In all honesty, Barnes & Noble deserves a round of applause for keeping its head above water. Its former rival Borders went down in a fierce ball of flames when the e-book revolution began, losing business to tech titans like Apple (AAPL), Amazon (AMZN), and Google (GOOGL). So how has Barnes & Noble remained afloat, and why has BKS stock been on a remarkable 80% rally in the last year?

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Source: Barnes & Noble Website

One might think that Barnes & Noble’s attempt to gain share in the e-reader market with its Nook device might be responsible for the company’s refusal to die. In fact, the Nook had been nothing but a nuisance for BKS stock, and B&N’s decision to spin off the division earlier this year fueled much of the recent BKS stock rally. It turns out the Nook, which at one point seemed like the only obvious move to make in the digital age for a national bookseller, only ever gobbled up money and resources.

BKS stock is up more than 3% today after reporting earnings this morning. Let me clarify: There were no earnings to be had.  Revenue slid 7% and B&N lost $28.4 million in its first fiscal quarter. Here’s the thing, though — it coulda been a lot worse!

Yes, that’s the rationale behind the BKS stock rally today. There remains little chance, in my mind, that BKS will ever survive — much less thrive — in the long term. For now investors are content to see the company cut costs and decelerate the inevitable slumping of revenue. To adopt a term of war, Barnes & Noble is bleeding out slowly. Even after today’s “earnings.”

Here’s the good news: There is a faint, barely visible light at the end of the tunnel for BKS stock holders. It’s flickering and dim, but it’s a light — technically. The source is Google, which out of the kindness of its heart (and lust for control over every industry on Earth) has decided to team up with BKS to test its same-day delivery service with Barnes & Noble books.

Barnes & Noble is being used, of course. GOOGL only wants to prove the concept of Google Shopping Express, the company’s delivery service that’s going toe-to-toe with similar services offered by AMZN and, increasingly, taxi industry-killer Uber. There’s a slim chance that the BKS-GOOGL partnership can reinvigorate sales, and further cost-cutting techniques will allow Barnes & Noble to be profitable once again.

A slim chance of profitability at some point in the future doesn’t justify an investment in my book, and merely losing less money than the market expected doesn’t sound bullish to me either. That’s why,  from a long-term perspective, I think the recent BKS stock rally is largely unwarranted and certainly misleading.

BKS could eventually be bought out by a much larger digital rival with cravings for a physical presence, but that kind of speculation borders on becoming outright fiction.

(For future generations who encounter this article: “fiction” was once a style of literature you could purchase in crude, non-electronic formats at physical bookstores.)

As of this writing, John Divine was long GOOGL, GOOG, and AAPL common stock 


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/barnes-noble-earnings-keep-bks-stock-rally-alive-dont-read/.

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