Barnes & Noble
The nation's largest book retailer enjoyed some heady times last year, netting
investors a tidy 147% in 1997. Even since we wrote about the company in
January, the share price has jumped 14%.
The company had benefited from a newfound ability to manage expectations
and beat earnings projections. Plus, shoppers were buying books.
Sales grew an average of 19% from 1995 to 1997. Investors finally caught on
that Barnes & Noble was a good story, as it gobbled up booksellers and grew
market share.
Enter Barnesandnoble.com, the company's newly redesigned answer to Web
darling and e-commerce king, Amazon.com (AMZN). Barnes & Noble is
making a play to profit from the seemingly limitless sales the Internet could
bring.
And the site has done well. Sales rose 14% sequentially last quarter and
estimates show that the company could sell as much as $100 million worth of
books online by year's end.
The problem is that Amazon's online sales grew 32% sequentially last quarter
and the company's lead in online sales is growing, even as the new kid on the
block upgrades. "As retail shifts from brick and mortar to online, it's
benefiting the dominant player, Amazon," says analyst Craig Bibb of
PaineWebber.
Bibb also thinks that Barnes & Noble's margins, already expected to be a thin
2.4% in 1998, will shrink as steep online discounts cut into superstore sales
and overall profits. At that point, Barnes & Noble will have no where else to
turn.
Analysts still expect Barnes & Noble to increase earnings 24% during the next
tw o years, but while Amazon trades at over 1,000 times expected 1999
earnings, Barnes & Noble trades at a pedestrian 30.1 times 1998 earnings.
Barnes & Noble's low PSR has made it a winner for some time now, but the
value, or lack thereof, should lie in the margins going forward. Unless, of
course, investors decide that their neighborhood book superstore is now an
Internet company. |
