Much Ado About Books: barnesandnoble.com’s IPO Vs. Amazon.com

Here’s
the Cliff Notes version on barnesandnoble.com’s planned IPO: see Amazon
go, see Amazon play, see Amazon run. Be like Amazon. But can
barnesandnoble.com write its way into the record books as its stronger
Web-based rival has? Wall Street has never valued an imitator as much as an
innovator.


That’s not stopping Barnes’ Web division, launched in March, from trying to
raise as much as $100 million in a public offering. While that may seem
like a lot, it’s still just one-third of Amazon’s working capital.


barnesandnoble.com parent firm Barnes & Noble, the world’s largest
bookselling chain, also plans on kicking in $100 million to the spun-off
Web division just prior to the IPO, bringing BN’s Website working cap to
about $200 million.


For the 26 weeks ending August 31, BN’s Web site
generated $21.87 million sales. Amazon posted $115.97 million sales for the
June quarter or more than 5x BN’s sales in half the time. On a quarter
basis, the BN Web site had just $12.5 million sales for its second quarter
ending July 31.





























Amazon.com

BarnesandNoble.com

Latest
Q sales

$
116.0

$
12.5

Net
loss

$
(21.2)

$
(13.6)

Annualized

$
463.9

$
50.0

1999
sales estimates

$
650.0

$
85.0




Barnes’ IPO filing doesn’t say how many shares it will offer or at what
price, but rumor has a 20% spin off in the works.


AMZN’s market cap is
north of $5.7 billion or about 12x annualized sales. On a similar multiple
barnesandnoble.com would fetch $600 million.


While investors may want to
value BarnesandNoble.com at an Amazon-like valuation, we estimate
barnesandnoble.com may fetch $400 million on IPO cap with a little leg room
on its first day.


Parent firm Barnes & Noble’s (NYSE:BKS) market cap on
September 28 was $1.96 billion. If we discount out the spin-off, as Wall
Street seems to already have done with BKS shares, the net result may be an
overall $2.5 billion valuation for the two entities combined.


BKS shares
peaked at $48 per share during the past 52-weeks and at $28.563 per share
September 28, as BKS traded 21% above its 52-week low.


The big plot twist:
can barnesandnoble.com ever catch Amazon.com? Perhaps over many years and
if the senior management at Amazon, including founder Jeff Bezos, all
stopped working at maintaining its retail leadership status, which is not
going to happen.


At a recent Internet World investment conference Jeff
was our guest speaker. He said that when he first decided to go into the Web
business he compiled a list of 25 possible areas and he settled on books.
We all know books are a thin margin business, so now Amazon adds music and
video. All thin margins, but ones where volume rules, massive volume, the
kind Amazon approaches with books but may take 12 to 24 months to build up
in music and video.


So Amazon has a lead in three areas vs.
barnesandnoble.com. Both must fight off rivals in music and video that have
established themselves and bought real estate on the very same Web sites
that these two have for books, specifically CDnow (NASDAQ:CDNW) and N2K
(NASDAQ:NTKI). Amazon’s biggest book pal is Yahoo, while barnesandnoble.com
has a four-year deal with AOL as its exclusive bookseller.


Over time does
the barnesandnoble.com IPO have a happy ending? We see it becoming more
valuable than parent Barnes & Noble shares. But it may cost BKS in some
valuation as the digital side battles the analog side for attention. The
scale of the Web side of the equation highlights the Internet advantages of
marketing and distribution to being land-based.


Already in the works by
barnesandnoble.com are downloadable books. When that happens in a friendly,
portable, clear, easy user format, then barnesandnoble.com may leave Barnes
& Noble far behind. As the story goes perhaps it’s not barnesandnoble.com
vs. Amazon but barnesandnoble “dot.com” vs. Barnes & Noble, the “undot.com,”
two sides of a well-established company that’s undergoing a revolutionary
shift from land to Web.



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