Barnes & Noble Promise -- Still Empty Handed

Barnes & Noble (NYSE: BKS) is not the next Borders, as some analysts like to say. It has much larger sales, much smaller financial obligations and a major e-commerce presence. But what seemed to be promising initiatives a few months ago are less promising now. Wall St. believes this. Barnes & Noble’s stock has dropped recently and shows no sign of recovery.

The firm has not found a way to effectively compete with Amazon.com (NASDAQ: AMZN), and that will not change even thought its looked like it might just months ago. Barnes & Noble shares trade near $15, down from a 52-week high of $26. That is not the stock price of a company in the midst of a powerful transformation. It is the price of shares of a firm that investors have abandoned.

The event that was supposed to transform the nation’s largest book chain was a $300 million investment by Microsoft (NASDAQ: MSFT) in Barnes & Noble’s online business, which included investment in upgrades and marketing of the Nook e-reader. The product still has a miniscule share of the market compared to the Amazon Kindle. And tablet PCs, which can be used as e-readers, have multiplied as other companies, including Microsoft, have pressed into the market.

Barnes & Noble’s partnership with Microsoft has not borne much fruit. In some ways it is like the one Microsoft set with Nokia (NYSE: NOK) as the software company created partnerships across a large number of portable devices to get adoption of its nearly orphaned Windows mobile OS. The action has done little to help Nokia’s smartphone prospects. As a matter of fact, Nokia recently cut the price of its flagship Lumia 900 in half to $49.99, presumably to spur demand.

The new versions of the Nook are supposed to run with Microsoft operating software. If Nokia’s example is an indication, the marriage of the Nook and Windows mobile will not draw much interest from consumers. As the media and analysts have pointed out often, the new Microsoft Surface tablet undercuts the prospects of a new version of the Nook.

Barnes & Noble has not had any leverage in the e-commerce market for years, if it ever did. Whatever Wall St.’s hopes were for a newer, better Barnes & Noble, they have dimmed completely.

Douglas A. McIntyre