Why Would Microsoft Want Nook?

The future of Barnes & Noble's (NYSE: BKS  ) Nook Media subsidiary is up in the air. Not only did the bookseller discontinue tablet hardware, but also the company just announced that its CEO has resigned. The Nook segment's EBITDA losses nearly doubled last fiscal year to $475 million, and B&N appointed CFO Michael Huseby as the new CEO of the Nook Media subsidiary.

The news has sparked a fresh round of speculation that Microsoft (NASDAQ: MSFT  ) may step up as a possible buyer, and acquire the remaining stake in Nook. The software giant currently owns 16.8% of the business, publisher Pearson has 5%, and B&N owns the remaining 78.2%. This isn't the first time that investors have contemplated such a move, as separate reports in May said that Microsoft was considering a $1 billion bid.

Microsoft originally invested $300 million in Nook in April 2012, which valued the business at $1.7 billion at the time. The segment has lost over a quarter of that in EBITDA over the past year, and revenue has fallen 17% to $776 million. The leaked docs from May suggested that Microsoft was valuing Nook at $1.66 billion. That valuation seems optimistic in light of recent events.

At this point, it's rather unclear what Microsoft would gain from buying the rest of Nook. There are no hardware operations to speak of, and Microsoft is already building its own Surface family of tablets. The Nook brand name isn't particularly powerful, especially compared to its Windows platform. Nook has tried to expand its content into categories like movies and TV shows, but Microsoft already has those on its Xbox platform. As far as mobile apps go, Nook apps are based on Android and B&N just adopted Google Play, neither of which helps Windows Store at all.

The only thing that Nook has that Microsoft doesn't is e-books. But if Microsoft really wanted to compete with Amazon.com, Apple, and Google in the e-book market (which is extremely likely), it could just separately ink its own deals with book publishers to expand its ecosystem without having to spend hundreds of millions of dollars on acquiring Nook.

Acquiring Nook might be faster, but it's also much riskier and much more expensive. Save your money, Microsoft.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 10, 2013, at 10:31 AM, AcuraT wrote:

    Why would Microsoft NOT want Nook? For the same reason they declined to buy Blackberry earlier this year - it is a declining market, and nook still offers little to nothing in return. Plain and simple.

  • Report this Comment On July 10, 2013, at 12:57 PM, rsubber wrote:

    History repeats itself….

    News item on July 9, 1913:

    Barnes & Noble Saddlery and Horseshoe Nail Purveyors announced today that they are abandoning sales of the new "automobile tyre." This failed "new technology" venture was pushed strongly by CEO Wm. Lynch, who is leaving the company. A Barnes & Noble spokesperson said B&N will henceforth concentrate on its established and well-respected core business of "providing for all the needs of those who travel, everywhere."

    Read more on my blog: Barley Literate by Rick

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2528783, ~/Articles/ArticleHandler.aspx, 10/21/2014 11:32:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement