barnesandnoble.com: Another Try

In late September, I wrote a profile on
barnesandnoble.com (BNBN) (“Barnesandnoble.com: Trying to Come Up with a Happy Ending”), thinking it was poised for a nice move.

The price was at 18-5/16.

The price now? Well, it’s at 18 7/16.

Yet, during this time, the company has been making smart moves. While
Amazon.com is entering a myriad of unrelated businesses, barnesandnoble.com
is focusing on its strengths.

Just yesterday, the company struck two important deals. One was with
Cendant to purchase www.books.com and the trademark. After all, it’s no
fun to type barnesandnoble.com in a browser. True, the company has been
promoting www.bn.com; although it is hard to get a better name than
books.com.

But there was more. As part of this deal, barnesandnoble.com will
cross-promote with Cendant online properties, such as DaysInn.com and
ShoppersAdvantage.com.

barnesandnoble.com also struck a deal with Netmarket Group (NGI) to become
the exclusive online book and music retailer. Netmarket Group runs
AutoVantage.com, TravelersAdvantage.com, PrivacyGuard.com and
FareAgent.com.

Moreover, the company has been leveraging its platform, but not straying
from its core competencies. The company recently added electronic greeting
cards, as well as prints and posters (which are museum-quality and range in
price between $35 and $500).

barnesandnoble.com is translating its momentum into strong financial
results. In its latest quarterly filing, sales surged from $15.6 million
to $49.1 million, which was $9.1 million better than analysts’
expectations. The company added 581,000 customers and expects to have 3.5
million by the end of this year. Of course, this does not come close to
Amazon.com’s 13 million customers, but barnesandnoble.com is ranked fourth
for e-commerce sites according to MediaMetrix.

A key advantage is that barnesandnoble.com has a preexisting distribution;
Amazon.com, on the other hand, must spend billions developing their own.
This helps explain the controlled burn-rate of barnesandnoble.com. In its
last quarter, the company lost $21.9 million, which compares to $18.6
million in the same quarter a year ago. Actually, the losses are mainly
the result of heavy marketing expenses, which were $26.3 million in the
latest quarter.

The company has no long-term debt and $561 million in the bank. I suspect
there will be more surprises on the upside and eventually, investors will
catch-on to the solid fundamentals. It has taken some patience, but it
should be worth the wait.


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