Multigrain Discussion: If Books Are Dead, Why Is Barnes & Noble Stock So Hot?

by | Jun 11, 2013 | 0 comments

Good Question! Why are shares of B&N returning  34.5 percent over the last 12 months if books, their main stock in trade, are on life support?  There is no denying that on the surface things are not looking good for the bookstore giant as it continues to suffer revenue shortfalls and negative operating cash flow.  So what gives? Are the investors who are bidding up the share price uninformed?  Do they know something the rest of us don’t?

In her Fiscal Times article “If Books Are Dead, Why Is Barnes & Noble Stock So Hot?” Suzanne McGee not only raises questions about B&N and its investors, she probes deeper and points to basic problems with the business model itself.   It appears that it’s not books that are not dying, it’s the brick and mortar bookstores themselves that are in trouble.

Ms. McGee makes the case that rumored rescues by Leonard Riggio, B&N’s largest shareholder and Microsoft’s possible purchase of the Nook Media’s digital business are driving share price.  In short, investors are taking a risk.  The growth in share value has nothing to do with core fundamentals like growing profits and expanding market share.  B&N’s are less than inspiring, in fact, they border on depressing.  But it’s not because books are dead. People are still reading.  They still buy books.  However, as Ms. McGee notes more and more of them are buying their books online or at large discount stores.  And unfortunately for Barnes and Noble, even devoted book buyers are getting in the habit of turning to Amazon and other retailers.  So while she personally regrets it,  she points out that the simple fact of the matter is that “bookstores are not a growth business.”

But one has to wonder.  While Ms. McGee makes a number of valid points about B&N, do her conclusions apply to the bookstore business in general?  Or is this “no growth” scenario confined to big box bookstores?  After all for four years running, the American Bookseller Association which represents independent bookstores has shown a growth in membership.  And the Christian Science Monitor notes that “sales at independent bookstores overall are rising, established independents are expanding, and new ones are popping up from Brooklyn to Big Stone Gap, Va.”

What do you think?  Is Ms. McGee right?  Are bookstores on the down slide?  Is the growth of the indies a temporary fluke?  Or  is Ms. McGee only partially right?  Are we looking the resurgence of the local bookstore as the big box stores fade?   How about your buying preferences?  Have you visited a bookstore lately?  Or is online shopping for books enough to keep the bibliophile in you satisfied?  Let us know.  As always, we’re interested in where you stand.

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