At a time when many fledgling retailers are being dismissed as dinosaurs in training, Barnes & Noble
The bookselling superstore chain is trading sharply higher today after Jana Partners revealed that it has acquired a 14% stake in the seemingly troubled retailer. Liberty Media
So what's the attraction drawing a hedge fund like Jana Partners closer to a company that many have left for dead?
When Borders liquidated its operations last summer, it wasn't an event that Barnes & Noble was cheering. The move may have eliminated its biggest real-world competitor, but it also was a sign that a lot of consumers were opting for digital delivery of their books and magazines instead of consuming them in leafy form.
Some will argue that the reason that Barnes & Noble didn't beat Borders to the lit-savvy grave is that it, too, has a thriving tablet in Nook. However, there are two big problems with Nook in all of its incarnations.
- Barnes & Noble is a distant second to Amazon in e-readers.
- The more successful it is in selling e-readers, the more it will suffer at the store level as its most loyal customers go digital.
It's always possible that both Jana and Liberty see the value of the Nook platform exceeding what even a shuttered Barnes & Noble would be worth.
They better hope so. Analysts don't see Barnes & Noble turning a profit until fiscal 2014 at the earliest, and these aren't pessimists. Wall Street has actually overestimated the chain's earnings power every quarter, so it seems as if even the pros haven't realized how bad the company's bottom line is holding up.
Jana Partners is a hedge fund manager that favors an activist angle, so it knows what it's doing in diving into problematic companies. However, given the real possibility that Barnes & Noble is on an irreversible downward spiral, it may have bitten off more than it could chew this time.
The popularity of e-readers, smartphones, and tablets opens the door for some surprising Wall Street beneficiaries. Read up on three hidden winners in a free report. If you wait for the report to show up on your Nook you may be too late to the party so check it out now.
The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Longtime Fool contributor Rick Munarriz does not own shares in any of the other stocks in this story, except for Liberty Media. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
More from The Motley Fool
3 Great Reasons to Sell Barnes & Noble, Inc. Stock
The beleaguered bookseller continues to disappoint investors.
What Happened in the Stock Market Today
Stocks continued their strong start to 2018. Holiday sales at Barnes & Noble disappointed investors, though, and Momenta Pharmaceuticals reported a successful drug trial.
Why Barnes & Noble, Inc. Stock Plunged Today
The bookselling retail chain endured a difficult holiday season. Here's what investors need to know.