I thought that the article in Barron's was a mixed bag as it relates to BKS. As you note, this is going to be a very competitive market. The fact that AMZN is now building warehouses will certainly work to BKS's and BNBN's advantage as BNBN will be able to rely on the existing BKS infrastructure as well as the Ingram infrastructure, whose sophistication far exceeds the capabilities of either BKS or BGP.
In reading the article, however, I was struck by the fact that the big winner in BNBN, and maybe the company that is going to be the dominant player in the online bookselling industry, is Bertelsmann. Their $200.0 MM investment in BNBN last September now has a gross value of over $1.3 billion and it looks like they have made a number of other strategic investments. They own a 17% stake (as does BKS) in NuvoMedia, a company marketing the Rocket eBook, which allows you to download the digitized content of a book and read it on a notebook-sized computer device that displays the book on a screen one page at a time. They also own a number of U.S. publishers, including Randon House and Bantam Doubleday Dell, all of which will probably be selling books directly online.
I still stand by my calculations and I am a bit confused by the disparity between the intrinsic value of BKS and the market's valuation. Is the market telling us that BNBN is over valued? Bear in mind that the market cap of BNBN is equal to approximately 17% of the market cap of AMZN, even though BNBN's first quarter sales were equal to only 11% of AMZN's sales. One way or the other, the gap will close. JMHO. |
