BAMM IS A SHORT, HERE'S WHY...
Full disclosure first - I have shorted this thing. I didn't do it lightly, as yhoo, amzn, aol are among my biggest long positions, with the first two approaching ten-bagger profits.
At 39, bamm has a $679 mil market cap. Barnes and Noble (bks) has a $2.37 bil market cap, or only 3.5X bamm's. But bks has revenues fully 8.5X larger, not 3.5X, AND:
1. bks is earlier in getting its act together on the web. Earliness counts for an awful lot on the web, and explains why amzn's online revenues are still running about 9X those of barnesandnoble.com, even with bks devoting massive resources to catching amzn. Now, at this late date, bamm is trying to get with the program.
2. bks has greater brand name recognition in terms of capturing web customers
3. bks has greater economies of scale (which translates among other things into puchasing books at lower prices)
4. bks has at least 8.5X times the ability to afford mass-market (TV, print, radio) advertising to draw customers, especially with Bertlesmann behind them
5. bks' core business is healthier, with Q3 comp store sales up +4.5% versus a DECLINE of -3.3% at bamm
ANY comparison of bamm to amzn is specious, as:
1. bamm has a core bricks and mortar-based book business which gets hurt as bookselling migrates to the web; amzn does not
2. bamm will not be able to become a significant enough player (bks has 4.5 mil customers already) to leverage into other markets such as music CDs, videos, and gifts, as amzn already has
OTHER things to note:
1. amzn and bks already have the distribution channel largely locked up, with preferred/exclusive bookselling placements at yahoo, netcenter, msn, etc., not to mention "associates" type programs. Where is the available web real estate for bamm to gain traction?
2. bamm's "enhanced" site is still not nearly as rich as either amzn's or bks'.
IN SUMMARY
Even though bamm has 11.7% of bks' revenues, it should have LESS than 11.7% the market cap. bamm is LATE to the web, lacks the deep pockets of a Bertlesmann partnership, has a weakening core business to begin with, and will end up LOSING share of the (5% growth) total bookselling market as the market moves increasingly to the web. bamm will likely end up with less than 11.7% of the online book revenues of bks (and less that 2% of amzn's revenues). 11.7% of bks' market cap would mean a stock price of $16, but given their poor positioning, lateness, and lousy core business, $5 to $10 is probably more appropriate. Salomon Smith Barney on Wednesday afternoon put a $6.15 value on the shares, and downgraded it as well. |
