Store Closures For Some, And Growth For Others...
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Some people enjoy going to libraries and reading a hard copy of a book, and some people don't. Many times people prefer to stay home with the kids and read a book on tablets such as iPads, Nooks, and other gadgets. These devices have seemingly overwhelmed the book industry, and one company is suffering more than others. The sudden rise of E-books and the dramatic fall of classic bookstores have both happened quickly, and certain companies have expanded people's options of how to read even more.
Barnes and Noble (NYSE: BKS) released statements that made some people wonder how long the company will be around. The company announced twenty store closings each year for the next decade - roughly one-third of their current locations. Barnes and Noble lovers should note this won't happen overnight for one main reason. The company can't simply close a large amount of stores tomorrow due to operating lease commitments, which can't be pulled like weeds out of a garden.
The company has very stiff competition, and seems to be fighting an uphill battle with large tech companies. Now, this might not be earth shattering news, but could fewer locations actually be better for Barnes and Noble? Yes, I believe it could be. Barnes and Noble accrues revenue of $7 billion each year and holds a market cap of $780 million. Competitive pressures are forcing Barnes and Noble to become very efficient at what they do. Investors should note that the goal isn't to have the most locations, but rather to be more profitable.
Apple (NASDAQ: AAPL) boasted nearly twenty-three million iPads sold in Q4 and hold 43.6% of market share in the tablet world. Compare this to Barnes and Noble selling one million Nooks in the December quarter and the competition seems enormous. Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG) both sold more tablet devices than Barnes and Noble as well. Amazon sold approximately six million units and holds 11.5% of the market share. Google sold 44.4% of all tablet sales by large vendors in Japan, which surprisingly beat Apple's 40.1%. With that said, Google expects to release the Nexus 7's follow up in May with worldwide expectations of approximately ten million sold in 2013. That's not even half of Apple's quarterly sales. With demand for the Nexus 4 greater than Google can produce, maybe they should ask Apple for production advice. Google only sold approximately 375,000 Nexus 4 devices from the first of November until the first of February.
For years people have struggled to value Amazon. The company grows exponentially every year, and yet shows very little profit. Compare Barnes and Noble, Apple, or Google's FCF yields of 12.3%, 11.1%, and 5.3%, respectively, to Amazon's 0.3%, and Amazon seems dramatically over-priced.
In a recent post by Daniel Sparks, he managed to value Amazon at $270 based on cash from operations projections instead of FCF yield. Moreover, I believe his approach was fairly conservative in nature, and may be a more accurate way of valuing a company with such dramatic growth.
The Foolish Conclusion...
There is stiff competition in today's society regarding who can capture the most readers. Barnes and Noble is losing ground, but still seems fairly priced. Apple and Google are both valued slightly more expensively than Barnes and Noble, but with the amount of sales they have I don't see why they shouldn't perform well. Yes, Apple has declined recently, and uncertainty looms as to how the stock will perform. Apple may prove to be the ultimate dividend stock.
tlwofford has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!