If Books Are Dead, Why Is Barnes & Noble Stock So Hot?

The doors of New York’s Javits Center swung open wide this morning to welcome thousands of booksellers, publishers, librarians, authors and their agents at the annual jamboree known as BookExpo. Almost certainly, the event will resurrect the seemingly endless debate over e-books and the future of reading.

While Barnes and Noble (NYSE: BKS) and its Nook e-book division may not be among this year’s exhibitors, the book industry headlines that likely will hit the papers in the coming days should prompt investors to consider the many risks that hover over the book retailing giant’s head, especially given that the stock is now sitting on a 34.5 percent return over the last 12 months and an astonishing gain of 46 percent so far this year.

The company is due to release its fourth-quarter earnings soon, and they may well be even more depressing than its third-quarter results, which saw a 10 percent revenue shortfall and a net loss when analysts had been calling for a profit. Barnes & Noble’s operating cash flow is solidly in the red, thanks in part to the costs of ensuring that its Nook e-book franchise keeps up with Amazon’s (NASDAQ: AMZN) Kindle – not to mention Apple’s (NASDAQ: AAPL) iPad, which has a secondary role as a reading device. And questions about the fate of Nook and of Barnes & Noble’s bricks-and-mortar business are – or should be – overshadowing the performance of the company’s stock.

While companies like Dell (NASDAQ: DELL) and Best Buy (NYSE: BBY) continue to battle with similar questions about the sustainability of their business models and have suitors in the wings eager to take them private at a suitably inexpensive price, Barnes & Noble must deal with two separate sets of uncertainties. On the one hand,

Leonard Riggio, chairman of Barnes & Noble and its single largest shareholder, has said he might be interested in formally separating the traditional and the e-books business and taking the former private in a buyout.

Meanwhile, rumblings that Microsoft (NASDAQ: MSFT) might be willing to fork over up to $1 billion for Nook Media’s digital business is largely responsible for the latest and largest surge in Barnes & Noble’s share price. Read more at

Besides, how can you write in the margins on an electronic screen? Just kidding. I'm a paper book reader myself as is my wife. It might be an age thing. I'm in my sixties and my wife is close to it. Her daughter wanted to give her a Kindle for Christmas, but my wife prefers reading paper books. As do I.

For one thing, used books are so cheap, if I lose one, it's easy to replace. If I have hundreds of books stored on an electronic book thingy, if I lose it or it malfunctions, how do I replace all those books? If I want to loan a book to another person, how do I do that with an electronic book? Maybe a Kindle user has a good reply for those questions, but from the view of my wife and I, electronic books are a solution to a problem that doesn't exist for us.

I've got my Kindle which I use a lot. Great to toss in my bag everyday for the times when I'm out, bored, and can use the time to browse my kindle selections. I've got about 13 pages of free ebooks. Lots of good devotional reading.

But I find most of the Kindle stuff I choose is free. If I spend money on books, I still like to buy a hard copy book. Love my local used book store. I was depressed when our Borders shut down. I have several hundred books and don't think I will ever get rid of them.

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