Amazon Revenue Misses, Shares Plunge

What did I write yesterday? WHO called it? WHO is the man? Reuters: "Amazon posted holiday quarterly revenue that fell short of analysts' estimates and forecast disappointing first-quarter operating margins on Thursday, and its shares fell almost 10 percent. Fourth-quarter revenue for the global online retailer was $12.95 billion. Analysts on average forecast $13.01 billion. Amazon's fourth-quarter operating profit margin was 3.7 versus 5.0 a year earlier, a sign of how much Amazon and other retailers had to discount to attract customers during the holidays, analysts said. ... "

Amazon.com Announces Third Quarter Sales up 39% to $7.56 Billion

Business Wire: "Net sales increased 39% to $7.56 billion in the third quarter, compared with $5.45 billion in third quarter 2009. Excluding the $83 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 40% compared with third quarter 2009. Operating income increased 7% to $268 million in the third quarter, compared with $251 million in third quarter 2009. The unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter on operating income was $15 million. Net income increased 16% to $231 million in the third quarter, or $0.51 per diluted share, compared with net income of $199 million, or $0.45 per diluted share, in third quarter 2009." Third-quarter net income rose 16 percent. Most analysts were looking for net income something like .48 cents per diluted share. Amazon delivered .51.

Apple Posts Surge in Sales and Profit, but Margins Slip

Have you ever noticed how "bad news" from Apple is almost always news that any other corporate board would die for? NYTimes.com:

SAN FRANCISCO — Strong sales of iPads, iPhones and even Mac computers produced record revenue and profit for Apple in its fourth quarter.

It was not enough, however, to sustain Wall Street’s exuberance for the consumer electronics company that has seemed to do everything right in analysts’ eyes. The company’s shares fell about 6 percent in after-hours trading on Monday after the company announced its results.

Apple said that it sold 14.1 million iPhones in the quarter, ended Sept. 25, an increase of 91 percent from a year earlier. Consumers bought 4.2 million iPads, the tablet computer it introduced in April. Mac sales totaled 3.9 million, up 27 percent.

But buried among quarterly results that any company would be more than happy to emulate was a decline in gross profit margins. Investors disliked the small blemish, sending Apple’s shares down. ...

Apple’s success has helped to propel its shares up over the last year, to close on Monday in regular trading at $318, a high.

Otherwise, analysts remained enthusiastic about Apple, based in Cupertino, Calif. Indeed, it was a quarter that highlighted the company’s dominance in consumer electronics. The company said net income for the quarter rose 70 percent, to $4.31 billion, or $4.64 a share, from $2.53 billion, or $2.77 a share, a year earlier. Revenue rose 67 percent, to $20.34 billion, from $12.21 billion. ...

Apple 4Q Net Income Soars 70 Percent

NYTimes.com: "CUPERTINO, Calif. (AP) — Apple says its fourth-quarter net income soared 70 percent on staggering sales of iPhones and iPads. Apple Inc. sold 14.1 million iPhones from July through September. It sold 4.2 million of its tablet computer, the iPad. That's fewer than analysts, on average, had expected. Apple earned $4.3 billion, or $4.64 per share. Revenue jumped 67 percent to $20.3 billion. On both measures, Apple did significantly better than Wall Street analysts expected. "

Citigroup Analyst Boosts Kindle Sales Forecasts

Peter Kafka @ D: All Things Digital:

Citigroup’s Mark Mahaney ... is bullish enough about the Kindle to boost his sales estimates for this year and 2011. Mahaney now thinks Amazon (AMZN) will sell 5 million units in 2010, up from an earlier estimate of 3.9 million; he predicts sales of 8.4 million units in 2011, up from an earlier target of 5.2 million units. ...

More Kindles sold means more e-book titles sold, so Mahaney has bumped up those numbers, too. He assumes that each Kindle device represents two books sold per month, and that Amazon will sell 128 million units in 2010, and 271 million in 2011.

Note that even when a potential Kindle buyer grabs an iPad instead, it’s not the end of the world for Amazon, because it can sell e-book titles to iPad owners, too. (In fact, Amazon has begun selling the iPad itself.)

And the retailer still holds a huge edge on Apple in terms of available catalog. ...

Riggio Wins Barnes & Noble Battle

NYTimes.com: "The company still has a large number of shareholders who question its strategy, but it won some breathing space on Tuesday after shareholders backed its three candidates for the board, including its chairman, Leonard S. Riggio, over a slate led by the investor Ronald W. Burkle. A preliminary tally showed that about 44 percent of the shares voted for the Barnes & Noble slate, while 38 percent voted for the candidates named by Mr. Burkle’s investment firm, the Yucaipa Companies. Shareholders also rejected a proposal by Yucaipa to remove a poison-pill plan aimed at limiting Mr. Burkle’s holdings to under 20 percent."

Barnes & Noble/Burkle Fight Ends Today

The Associated Press: "As proxy fights go, the one between bookseller Barnes & Noble and billionaire investor Ron Burkle has been a page turner, and it could come with a cliff-hanger ending Tuesday. At stake are the future of Barnes & Noble's brick-and-mortar stores and how it plans to grab more of the electronic book market. The company put itself up for sale in a surprise move in August and has increasingly focused on e-books as a path to growth. The contest is too close to call at this point, Morningstar analyst Peter Wahlstrom said. 'It could really come down to an 'every vote counts' situation,' he said." From ER: I've got a hunch Burkle will end up the winner. ISS recommended going with him, and many large insitutional investors are required by their charters to vote as ISS instructs.

D-Day for Riggio/Barnes & Noble

WSJ.com: "Tuesday could be the darkest day in Leonard Riggio's storied career as a bookseller. The Barnes & Noble Inc. chairman faces a fight for re-election, as activist investor Ronald Burkle makes his own pitch for the board in what is likely to be the retailer's most contentious annual meeting."

The Ron Burkle Mystery: Why Does He Even Care About Barnes & Noble?

Mark Lacter's blog - Forbes: "Beverly Hills billionaire Ron Burkle may or may not win the battle for Barnes & Noble’s (NYSE: BKS) three board seats, but he’s most certainly losing the war. With the company’s annual meeting less than a week away, shares are down more than 5 percent this morning, or a drop of better than 30 percent from its 52-week high. That suggests investors are voting with their feet rather than waiting for this drawn-out and expensive proxy fight to be resolved. ... "

Major Setback for Riggio in Barnes & Noble Proxy Fight

NYTimes.com:

Barnes & Noble sustained a setback on Monday when a powerful proxy advisory company endorsed directors proposed by the billionaire investor Ronald W. Burkle over the company’s own slate, which included its chairman, Leonard S. Riggio.

The endorsement by Institutional Shareholder Services could be crucial, coming just a week before the annual shareholder meeting on Sept. 28. Some large institutional investors are required to vote their shares in accordance with I.S.S.’s recommendations. ...

In its 25-page report, Institutional Shareholder Services supported Mr. Burkle’s contention that Barnes & Noble’s corporate governance needed to be improved.

Yucaipa raised questions about the company’s executive pay practices and some of its deal-making, including the purchase of a college bookstore business owned by Mr. Riggio. Investor lawsuits about that deal are pending.

“We believe the dissidents have demonstrated a compelling case that change in the BKS board is warranted,” I.S.S. analysts wrote, referring to the company by its stock symbol.

The report also pointed to the slide in Barnes & Noble’s stock price as another reason for change. Shares in the company have tumbled 28.9 percent in the last year. ...

Mr. Riggio, who fashioned his empire starting with a single Manhattan bookstore 39 years ago, argues that the company has a promising future running bookstores while expanding in a digital marketplace anchored by devices like its Nook e-reader. But Mr. Burkle says the company’s strategy needs change, though he has declined to elaborate. ...

Barnes & Noble Agonistes Continued

NYTimes.com:

Just over a week before Barnes & Noble shareholders convene for their annual meeting, Mr. [Len] Riggio remains locked in battle with the billionaire investor Ronald W. Burkle over three board seats, including Mr. Riggio’s. And Barnes & Noble has begun seeking potential buyers for the entire 1,350-store chain. ...

The fight over Barnes & Noble may seem disproportionate to what is at stake. The company’s market value has shrunk to less than $1 billion, and bookselling has been squeezed by Amazon.com on one end and Wal-Mart Stores on the other. But as Mr. Riggio says, the battle touches on deep reservoirs of sentiment about an empire he fashioned starting with a small bookstore 39 years ago. ...

Mr. Burkle said he was not seeking control of the company through the proxy fight, but wanted to have independent directors on the board. “I want someone in there who doesn’t say, ‘That’s the most amazing thing I ever heard’ every time Len opens his mouth,” he said.

Mr. Riggio’s biggest challenge remains grappling with the Internet, and he argues that digital bookselling is the biggest opportunity since the paperback revolution. Barnes & Noble’s e-reader, the Nook, has been making headway in sales, he said. (The company says it controls about 20 percent of the e-book market, based on information from publishers.)

He also pointed to growth at the company, which reported net income of $36.7 million on a 31 percent gain in revenue, to $5.8 billion, for the year ended May 1. For its most recent quarter, Barnes & Noble reported a 21 percent jump in overall revenue, to $1.4 billion, though it posted a $63 million net loss as a result of the legal fight with Mr. Burkle and weakening sales of print books.

Many analysts and industry executives do not share Mr. Riggio’s optimism. Shares in the company have tumbled 28.9 percent in the last year. An analyst at Bank of America Merrill Lynch downgraded Barnes & Noble to “underperform” last week, arguing that the company’s digital strategy faced major challenges from wealthier rivals like Amazon and Apple. ...

The Fight for Barnes & Noble: Who Actually Wins?

baltimoresun.com: "Execs announced in August that they were exploring options that include putting the company up for sale. Meanwhile Burkle has been trying to increase his stake in the company, as the AP has reported. The battle is being fought on several fronts: the courts, Wall Street and press releases. And it ain't pretty. Burkle accuses B&N founder Leonard Riggio of poor management and self-dealing; Riggio raises the specter of a Gekko-like hostile takeover. ... The real winner[s] in all this? Amazon, Apple, Walmart and other companies trying to eat B&N's lunch. With B&N execs consumed by the takeover battle, how can they focus on the huge structural changes in the business, including the shift from paper to digital, and the rise of mass merchandisers? It's a very, very dangerous time to get distracted -- no matter who has control of the company."

Bertelsmann Raises Outlook

WSJ.com: "Media conglomerate Bertelsmann AG Tuesday lifted its full year outlook after a significant improvement in first-half results, driven by the steady improvement in advertising markets, cost cutting and lower charges compared with a year earlier. Growth was mainly fueled by the advertising-driven divisions, broadcaster RTL Group SA (RTL.BT), Hamburg-based newspaper and magazine publisher Gruner Jahr, and by trade book publisher Random House where the U.S. business and digital activities were particularly positive, Bertelsmann said."

Barnes & Noble’s Loss Wider Than Anticipated

Told you so. BusinessWeek: "Aug. 24 (Bloomberg) -- Barnes & Noble Inc., the U.S. bookstore chain that put itself up for sale this month, posted a wider first-quarter loss than some analysts estimated as retail sales fell for an 11th straight quarter. The loss excluding some items was $1.02 a share in the three months ended July 31, the New York-based chain said in a statement. Analysts projected a loss of 80 cents, the average of five estimates compiled by Bloomberg."

A Whopping 42% of B&N's Float is Sold Short Ahead of Earnings Report

BloggingStocks: "Traders should be aware that Barnes & Noble's high short-to-float ratio could trigger a volatile post-earnings move, whether higher or lower. And happily, despite the proxy battle and looming earnings report, options on BKS are still fairly priced at the moment. ... "

Dismal Barnes & Noble 1st Quarter Results Due Any Moment Now

BusinessWeek: "Barnes & Noble Inc., the nation's largest traditional book seller, reports fiscal first-quarter results before the market opens on Tuesday. ... WHAT'S EXPECTED: Analysts polled by Thomson Reuters expect Barnes & Noble to report a loss of 80 cents per share on revenue of $1.42 billion. LAST YEAR'S QUARTER: Barnes & Noble reported a loss of 5 cents per share on revenue of $1.11 billion in the prior-year quarter."

Goldman Sachs Analysis: Only 30% Chance of B&N Finding a Buyer

Goldman Says 30% Chance of Barnes & Noble Deal - MarketBeat - WSJ: "... to the extent that the chairman and 30% holder of [Barnes & Noble] has expressed interest in buying the company, and that investor Ron Burkle, a 19% holder, had recently launched litigation over the firm’s poison pill, and has discussed the possibility of launching a proxy contest, we [Goldman] assign a 30% probability to a transaction, recognizing potential challenges in financing a transaction and the potential lack of other bidders."

Read "the potential lack of other bidders" as "no organization actually crazy enough to want to invest in a massive chain of brick-and-mortar bookstores, all of them on life-support."

Stocks: Amazon Downgraded on eBook Rivalry Concerns

From Dan Gallagher at MarketWatch:

Marianne Wolk of Susquehanna downgraded Amazon (AMZN 119.13, -1.87, -1.55%) to a neutral rating on Monday. In a note to clients, the analyst cited "intensifying competition" in the e-book market that is creating more uncertainty around the company's Kindle business. ...

"With moves pending by Apple and Google, rising competition is raising the uncertainty regarding eReader, eBook, and Book profit growth rates, capping the contribution to Amazon's valuation from these sectors," Wolk wrote. ...

Wolk said she estimates that the e-book business -- both devices and content -- will contribute about 6% of Amazon's total revenue by 2014. She believes that e-books and physical book sales account for between 8%-13% of the company's valuation, which leaves the shares exposed as competition mounts in the sector.

"With news flow likely to raise uncertainty over the next 12 months, it is likely to reduce the multiples attached to the contribution from the Kindle and importantly lower the valuation on physical books, which should see slowing growth as eBooks accelerate," she wrote. ...

Wolke also noted the way the industry's gradual adoption of the Agency Model is likely to impact Amazon's bottom line.