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Barnes & Noble Finally Gives Up

Evan Niu, CFA
June 25, 2013

After facing mounting evidence that its tablet business was struggling, Barnes & Noble (NYSE: BKS) has finally thrown in the towel once and for all. As part of its fourth-quarter earnings, B&N said it would discontinue tablet manufacturing in an effort to reduce losses in the Nook segment. Devices sales and digital content sales were both down in the quarter.

That wasn't fun while it lasted
Following some revenue gains in fiscal 2012, Nook sales have declined and EBITDA losses widened dramatically to $475 million in fiscal 2013.

Source: SEC filings.

The company has run a number of promotions to help spur sales this year, including extending a Father's Day Promotion. The most prominent sign that Nook was foundering was the official adoption of Google Play (NASDAQ: GOOG) last month. By fully embracing Google's sanctioned ecosystem, Barnes & Noble was admitting that its own efforts to sell content and offer services weren't going so well. After all, low-end devices typically sell at or near cost with the hopes of profiting on content sales later, and B&N gets no benefit from Google Play sales. Selling a product at cost and sending customers to another company's content store is not a winning formula.

This surrender has been a long time coming, as competition in the tablet market has intensified dramatically, particularly in the small-sized segment. Barnes & Noble was actually among the first companies to fork Google Android for its own purposes with the Nook Color in 2010. would implement the same strategy with the Kindle Fire a year later, albeit far more successfully since Amazon has a much wider content ecosystem in categories beyond e-books.

The gray area
B&N is sticking with its e-reader devices, and only giving up with color tablets. The company said it would implement a "partnership model" with color tablets and sell co-branded d