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Barnes & Noble might spin off Nook business

Shannon Stapleton/Reuters/File 2011

Barnes & Noble chief executive William Lynch says investors may be undervaluing its Nook business.

NEW YORK - Barnes & Noble, the nation’s largest book chain, said yesterday that it was considering spinning off its Nook e-reader division in an effort to help the nascent - and expensive - digital business grow.

Separating the unit could potentially bring new investors into the Nook business to help shoulder its costs but would raise questions about Barnes & Noble’s ultimate ability to compete for readers. While the company has made quick work of capturing almost 30 percent of the e-book market in two years, the rise of digital reading has increased the pressure on Barnes & Noble to devise a winning long-term strategy against Amazon, which still dominates in e-book sales.

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The Nook has been a crucial component of that strategy. And while it has sold well and drawn critical praise, Barnes & Noble has acknowledged that the Nook has not been profitable, leaving investors anxious about the future costs tied to it, with the need to develop new software and hardware and to advertise the products. By one analyst’s estimate, Barnes & Noble spends $200 million to $250 million annually on its Nook business.

“The Nook business has been a growth business for Barnes & Noble,’’ said Sarah Rotman Epps, a senior analyst with Forrester Research. “But there’s no doubt that continued growth and international expansion will take sustained investment that Barnes & Noble shareholders will not have the patience for.’’

Investors were unnerved yesterday when Barnes & Noble revised its earnings forecast downward for 2012, saying it expected losses of $1.10 to $1.40 a share. The company’s shares tumbled 17 percent, closing at $11.24. Barnes & Noble’s stock has fallen 30 percent in the past 12 months.

The company attributed the revision primarily to lower-than-expected sales of its black-and-white Nook devices.

Sales of Nook devices for the nine-week period ended Dec. 31 were up 70 percent over the same period a year earlier; all Nook-related sales, including devices, accessories and digital content, were up 43 percent. Brick-and-mortar sales rose 2.5 percent.

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