By Christopher Zara - In its starkest admission yet that it can’t beat Amazon.com Inc (NASDAQ:AMZN) by trying to imitate Amazon, Barnes & Noble Inc (NYSE:BKS) is getting out of the e-reader business.
The country’s largest non-virtual bookstore chain said Wednesday that it plans to separate its retail unit from its Nook Media business, a move approved by its board of directors. The spinoff will create two publicly traded companies and is expected to be finalized early next year. Shares of Barnes & Noble jumped more than 5 percent to $22.63 immediately following the announcement.
The decision will allow Barnes & Noble’s bookselling business to part ways with its long-suffering Nook e-reading devices, which have never been able to gain much ground against Amazon’s market-dominating Kindles. (Kindle has 48 percent of the market compared to Nook’s 17 percent, according to a recent study by Statistics Brain.) Perhaps more important for the New York company’s future, the spinoff will give Barnes & Noble greater ability to focus on its growing college-textbooks arm, where profits for the most recent quarter grew a staggering 271.5 percent. Michael P. Huseby, Barnes & Noble’s CEO, said in the company’s fiscal 2014 earnings release that the growth is a result of new contract acquisition and more offerings to students and faculty.
Company earnings show that revenue for Barnes & Noble’s core retail business was flat for the three months ended May 3, rising 0.8 percent to $955.6 million compared with the same period last year. At the same time, revenue for its College unit rose 18.2 percent to $252.3 million, while the Nook unit tumbled 22.3 percent to $87.1 million.
Barnes & Noble had been exploring the option of a Nook separation for some time. The devices debuted to much fanfare in 2009, but it was late to the market compared to Amazon.com Inc -- which introduced the first Kindle in 2007 -- and research and development of the product is expensive. The company sought outside investment help from the British publishing company Pearson (NYSE:PSO) and Microsoft Corporation (NASDAQ:MSFT), but the efforts couldn’t prevent a recent wave of layoffs at the Nook division.
Over the last few years, Barnes & Noble has dedicated considerable front-of-the-store retail space to its Nook table displays -- much to the irritation of some traditional booklovers -- but don’t expect the futuristic-looking exhibitions to disappear anytime soon. Asked if the company will return that prime real-estate to its former paper-oriented glory, a rep for the company said simply that Barnes & Noble will continue to sell Nooks and support Nook products. In a statement Wednesday, Huseby said, “We fully expect that our Retail and Nook Media businesses will continue to have long-term, successful business relationships with each other after separation.”
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