Although Barnes & Noble’s overall earnings for the holiday quarter was better than expected, results remain weak as competition in the tablet market has never been so aggressive. However, Barnes & Noble remains positive despite disappointing earnings and releases cheaper Nook in an attempt to increase sales and market share.
Despite Barnes & Noble overall confidence in its Nook tablet, the present market conditions can easily turn against the company. And given that Barnes & Noble hadn’t exactly had the best results with its tablet business, chances are competitors such as Amazon to mention the biggest will end up “eating it alive”.
The so called holiday quarter that just ended January 28 wasn’t exactly great for Nook. The business comprises e-books and the actual devices and managed to record revenue of $542 million, thanks to a 38 percent increase. In comparison, based on an estimate by the iSuppli, Amazon sold 3.9 million Kindle Fires over the last three months of 2011 and draw a tablet market led by Apple, followed in by Amazon, Samsung and Barnes & Noble.
Thus, Barnes & Noble’s strategy to get a bigger slice of the tablet market is to drop the prices. As a result, the company announced a cheaper Nook Tablet, which will be priced at $249. That doesn’t make a huge difference, but all in all it is $50 cheaper than the first version.
But, cheaper means less performance. The new Nook will carry only half of the first version’s memory, becoming a direct competitor to Amazon’s Kindle Fire on price and performance. However, if we take into account Amazon’s huge popularity with the users, Barnes & Noble’s last strategy might not deliver the expected results.
For the holiday quarter, Barnes & Noble reported net income of $52 million, at 71 cents per share. For the first quarter of 2012, the company estimates its Nook business will generate $1.5 billion.
Morningstar analyst Pete Wahlstrom points out that Barnes & Noble’s heavy spending on the Nook won’t be met by the $50 price discount. He argues that the price cut was a lot more than needed, although the new version has only half of the first gadget’s memory.