A Few Reasons Why I Am Shorting Barnes and Noble $BKS

 Written by Michael Bigger. Follow me on Twitter.

 Here they are:

1. Barnes and Noble (BKS) does not have the balance sheet to win a price war with Amazon.com.
2. BKS is fighting the Kindle and the iPad. Put yourself in BKS's shoes. Is that a war you can win? Imagine how much more intense this battle becomes if Google enters the market.
3. The Kindle has been social-media enabled. It seems like the big innovations on the e-reader front are not coming from BKS. I don't expect that to change.
4. My post Barnes and Noble's Pathetic Online Results was prescient. My short position has worked, and it should continue to do so.
5. With books going digital, BKS stock price should follow the same trajectory others followed in such predicaments: for example, Polaroid, Eastman Kodak, Blockbuster, etc. You get the idea.
6. If BKS decides to unwind stores, it would do so in a difficult real estate market.
7. Many e-books are free. Digital publishing will put pressure on e-books prices and more pressure on printed books. This trend is just starting. The margins won't sustain the old model.
8. The business model is broken.

Caveat: BKS will not go away so easily. It has a minimal amount of debt and it could very well find more capital to fight this battle.  I keep my short positions small since I never know what is lurking on the blind side.

Do you know of anything BKS could do to change my mind?

Comments

[gleick]

I agree w/ the challenging long term outlook, but if you have any position in BKS short or long, you must look at the immediate situation:

1. Riggio is selling the company. Having exercised options at $16.97/share (above market price of $15), it shows that he's putting his money where his mouth is.
2. Don't underestimate Ron Burkle. He is heavily invested and clearly sees value in BKS. Why should he continue to spend millions in a lawsuit and proxy fight if he didn't see value?
3. Riggio v Burkle showdown can easily create shareholder value in the short term.

[Michael Bigger]

Gleick,

Thank you for your comments. I must be careful with this short position. I own the September 18 calls against the short. I shorted in the low 20s. If they don't create shareholder value in the short term this company is toast. The business model is broken.