Barnesandnoble.com Reading Up on Enews.com Dave Marino-Nachison (TMF Braden)
December 16, 1999
Online books and music retailer barnesandnoble.com (Nasdaq: BNBN) tried to spur some interest in its stagnant stock today with the announcement that it will take an equity stake in magazine subscription website enews.com.
Barnesandnoble.com will buy about 32% of enews.com for cash and stock, as well as warrants to purchase another 8% over four years in connection with a joint service agreement of similar length. Publisher Hachette Filipachhi -- which brings us such titles as Mirabella, Woman's Day, and Premiere -- will also take a stake in enews.com. A Salomon Smith Barney research report said barnesandnoble.com's total investment will be $40 million, implying a total value of $100 million for all of enews.com.
The official line is what you'd expect from executives, mostly flowery talk of strategic fit and complementary product lines.
"Enews.com is a perfect strategic fit," said barnesandnoble.com CEO Jonathan Bulkeley in a statement. "Our complementary product lines offer outstanding cross-merchandising opportunities, and we believe an equity relationship permits broader integration and enhancement of the magazine section of the bn.com site, which in turn will generate stronger commission revenues through magazine sales."
The last line bears attention for the simple reason that most any time a company can come up with new, high-margin revenue streams, it's good news. As a subscription fulfillment hub, enews.com doesn't have to carry inventory or do the order fulfillment, instead collecting a commission per subscription committed. Can't get much higher-margin than that.
Of course, enews.com still has to market and staff itself; the former endeavor will prove extremely costly as enews.com tries to land space on the Web's top properties.
The bet for barnesandnoble.com is that enews.com's high-margin revenue streams will help bolster its results and drive traffic siteward. The company also hopes it can drive sales to and from different areas on its site as a byproduct of the association. Like Horse & Rider magazine? Than you might want to read Cormac McCarty's "All the Pretty Horses." OK, we know that's a stretch -- but you get the idea.
The most important question for investors, though, might be whether barnesandnoble.com had to pay $40 million for an operation that it very likely could have set up on its own for considerably less. What it suggests is that barnesandnoble.com is paying for enews.com's installed user base and whatever its brand amounts to, and gauging the effect of such sometimes-abstract concepts on concrete bottom lines can be rough going for careful investors.
On paper, the deal sounds nice. To quantify its eventual financial effect on barnesandnoble.com's business without more information on enews.com and the way it operates is difficult, though; it hasn't made an S-1 pre-IPO filing with the SEC, and its online press and investor relations areas are spare. That's probably why barnesandnoble.com shares didn't move much between the bells today.
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