Reply
DeanGibson
Posts: 2,118
Topics: 92
Kudos: 2,312
Registered: ‎04-12-2011
0 Kudos

Re: NOOK quarterly losses widen


keriflur wrote:

...  Last I checked, total net profit was more important than margin, and if you raise the cost you lose some of the sales, which may or may not lead to lower total net profit (depending, of course, on the demand curve and the pricing schemes of the competitors).

Net profit without the amount of capital investment is meaningless. Return on investment is a meaningful measure, and is a percentage, just like margin.

2 Nook HD/8GB + 2 Nook HD+/16GB: B&N 2.2.0 rooted
2 Nook Touch (one Ltd. Ed.): B&N 1.2.1 rooted; Dell Venue 8 Pro: Windows 8.1
2 Nook 1stEd/3G: B&N 1.7.0 rooted.; Acer Iconia A500: Android 4.0.3 rooted;
Nook Color: B&N 1.4.3 rooted; Samsung Galaxy Tab2 (7.0"): Android 4.2.2 rooted
Customer loyalty is earned, not commanded or deserved, and easily lost.
Never suspect intent where incompetence will do.
Distinguished Bibliophile
keriflur
Posts: 6,180
Registered: ‎01-05-2010
0 Kudos

Re: NOOK quarterly losses widen

Maybe I'm getting my terms wrong, but isn't net profit the amount you make after you subtract all the costs of investment (gross being the amount before you subtract the cost of investment)?  Isn't it effectively the "take home" amount, that can be reinvested, or distributed to shareholders?

Inspired Bibliophile
LarryOnLI
Posts: 1,983
Registered: ‎01-04-2010
0 Kudos

Re: NOOK quarterly losses widen


keriflur wrote:

Maybe I'm getting my terms wrong, but isn't net profit the amount you make after you subtract all the costs of investment (gross being the amount before you subtract the cost of investment)?  Isn't it effectively the "take home" amount, that can be reinvested, or distributed to shareholders?


@keriflur,

 

No you are getting the terms right.

 

THe reason it is meaningless is that saying your netprofit is $10 million leaves out the big picture.

 

Yes you made $10 million but if you spent $10 billion to earn it, then you would have been better off putting your money in a regular passbook savings account, you would have earned more.

 

Distinguished Bibliophile
keriflur
Posts: 6,180
Registered: ‎01-05-2010
0 Kudos

Re: NOOK quarterly losses widen


LarryOnLI wrote:

keriflur wrote:

Maybe I'm getting my terms wrong, but isn't net profit the amount you make after you subtract all the costs of investment (gross being the amount before you subtract the cost of investment)?  Isn't it effectively the "take home" amount, that can be reinvested, or distributed to shareholders?


@keriflur,

 

No you are getting the terms right.

 

THe reason it is meaningless is that saying your netprofit is $10 million leaves out the big picture.

 

Yes you made $10 million but if you spent $10 billion to earn it, then you would have been better off putting your money in a regular passbook savings account, you would have earned more.

 


This is where I'm getting lost - if you made 10MM, but you spent 10BN to earn it, wouldn't your net profit be -9,990,000,000?  Isn't the cost of investment (10BN) already subracted when you're talking about net?

Inspired Bibliophile
LarryOnLI
Posts: 1,983
Registered: ‎01-04-2010
0 Kudos

Re: NOOK quarterly losses widen

[ Edited ]

keriflur wrote:

LarryOnLI wrote:

keriflur wrote:

Maybe I'm getting my terms wrong, but isn't net profit the amount you make after you subtract all the costs of investment (gross being the amount before you subtract the cost of investment)?  Isn't it effectively the "take home" amount, that can be reinvested, or distributed to shareholders?


@keriflur,

 

No you are getting the terms right.

 

THe reason it is meaningless is that saying your netprofit is $10 million leaves out the big picture.

 

Yes you made $10 million but if you spent $10 billion to earn it, then you would have been better off putting your money in a regular passbook savings account, you would have earned more.

 


This is where I'm getting lost - if you made 10MM, but you spent 10BN to earn it, wouldn't your net profit be -9,990,000,000?  Isn't the cost of investment (10BN) already subracted when you're talking about net?


This is very simplified, I took an accounting course when working on my MBA, but all the intricacies are way over my head.

 

Gross Income:  $10.1 Billion

Expenses:         $10.0 Billion

Net Profit:         $0.1 Billion or 1%

 

If the theoretical company above had instead taken that  $10 Billion and bought CDs paying 2% instead of manufacturing widgets they would have had a net profit of $20 million instead of 10.

 

Distinguished Bibliophile
keriflur
Posts: 6,180
Registered: ‎01-05-2010
0 Kudos

Re: NOOK quarterly losses widen

Ahh, thanks.  I'm with you now.

 

So, going back to Lynch's 30% gross margin.  Not that same thing as an increase in ROI, right?  I would *think* that the investment in selling the ebook isn't the "cost", i.e. the amount that goes to the publisher, but the actual cost of selling the book (online infrastructure, bandwidth, server depreciation, etc.).  **Not to get started in another how-much-does-it-cost-to-make-an-ebook convo, but in the perspective of Lynch's goals**

 

I feel like I need to go back to college and re-earn my economics degree.  14 years on not using this stuff has clearly taken a toll.

DeanGibson
Posts: 2,118
Topics: 92
Kudos: 2,312
Registered: ‎04-12-2011
0 Kudos

Re: NOOK quarterly losses widen

[ Edited ]

LarryOnLI wrote:

keriflur wrote:

Maybe I'm getting my terms wrong, but isn't net profit the amount you make after you subtract all the costs of investment (gross being the amount before you subtract the cost of investment)?  Isn't it effectively the "take home" amount, that can be reinvested, or distributed to shareholders?


@keriflur,

 

No you are getting the terms right.

 

THe reason it is meaningless is that saying your netprofit is $10 million leaves out the big picture.

 

Yes you made $10 million but if you spent $10 billion to earn it, then you would have been better off putting your money in a regular passbook savings account, you would have earned more.

 


Both of you have the terms wrong.

 

Larry is wrong in saying "spent" (that would be a "cost");  perhaps he meant "invested" (that would be an asset).

 

Net profit is not computed from investment;  it is the difference of income (gross receipts) and expenses.

 

Larry's point is that no investor will invest ("loan", in the form of a stock purchase) money in a company that does not provide a decent return on the investor's loan.

 

Eg, let's say that B&N "spends" $1M to build a bookstore.  Let's assume for simplicity that the bookstore can be sold for what it cost B&N to build it (in other words, the bookstore as an asset, has a value of $1M).  Let's also say that after buying and selling books, including the operating costs (salaries, utilities, advertising, etc), that the bookstore has a net income of $10,000 a year.  That's not a very good return on investment for that bookstore, so unless there are other benefits to having that bookstore that benefit the company as a whole, the company would be better off selling that particular bookstore and investing the $1M in other places.

 

The fundamental confusion here is between money "spent" to acquire an asset, and an expense of operation.  Money (a cash asset) disbursed or acquired on:

 

  1. A building, is a capital asset.  There is no accounting effect on income/expense;  there is only the trading of one type of asset for another.
  2. Items purchased to be resold (eg, books), is inventory (an asset).  Same effect (none) as above, on income/expense.
  3. Advertising, operating costs, etc are expenses.
  4. Items sold is income.

 

Company stock is a special case.

 

2 Nook HD/8GB + 2 Nook HD+/16GB: B&N 2.2.0 rooted
2 Nook Touch (one Ltd. Ed.): B&N 1.2.1 rooted; Dell Venue 8 Pro: Windows 8.1
2 Nook 1stEd/3G: B&N 1.7.0 rooted.; Acer Iconia A500: Android 4.0.3 rooted;
Nook Color: B&N 1.4.3 rooted; Samsung Galaxy Tab2 (7.0"): Android 4.2.2 rooted
Customer loyalty is earned, not commanded or deserved, and easily lost.
Never suspect intent where incompetence will do.
Distinguished Bibliophile
keriflur
Posts: 6,180
Registered: ‎01-05-2010
0 Kudos

Re: NOOK quarterly losses widen

@Dean

 

So... Lynch, 30% margin?  Do you feel he's looking at the wrong figure, that his expectations are unrealistic, or that he's on the right track?

DeanGibson
Posts: 2,118
Topics: 92
Kudos: 2,312
Registered: ‎04-12-2011
0 Kudos

Re: NOOK quarterly losses widen


keriflur wrote:

@Dean

 

So... Lynch, 30% margin?  Do you feel he's looking at the wrong figure, that his expectations are unrealistic, or that he's on the right track?


Now you are talking about business pricing practices (about which I have no clue), rather than accounting principles and terms.

2 Nook HD/8GB + 2 Nook HD+/16GB: B&N 2.2.0 rooted
2 Nook Touch (one Ltd. Ed.): B&N 1.2.1 rooted; Dell Venue 8 Pro: Windows 8.1
2 Nook 1stEd/3G: B&N 1.7.0 rooted.; Acer Iconia A500: Android 4.0.3 rooted;
Nook Color: B&N 1.4.3 rooted; Samsung Galaxy Tab2 (7.0"): Android 4.2.2 rooted
Customer loyalty is earned, not commanded or deserved, and easily lost.
Never suspect intent where incompetence will do.
Doug_Pardee
Posts: 5,504
Kudos: 3,957
Registered: ‎03-09-2010
0 Kudos

NOOK Y/Y quarterly losses widen on (very slightly) increased sales

[ Edited ]

The new quarterly numbers are out, and B&N has provided back-calculated quarterly numbers for the NOOK division for the previous four quarters. And surprise, surprise, sales are up and losses are up. This is a distressing pattern.

 

NOOK quarterly figures since fiscal 1Q2012
(US$ million, rounded, except Margin %):

QuarterSalesGross
Profit
Margin
%
Sales &
Admin
(Loss)
1Q20121912613.6%77(51)
2Q2012152138.9%64(51)
3Q2012427286.5%110(83)
4Q201216310.6%78(77)
1Q20131922613.6%83(57)

 

Interestingly, 1Q2013 was almost identical to 1Q2012 except for increased expenses.

 

B&N states that sales of digital content increased 46% during the quarter. That suggests that sales of devices are way down. B&N acknowledges that "Device sales declined for the quarter due to lower average selling prices and production scaling issues surrounding the popular newly launched GlowLight product resulting in unmet demand." I suspect this had a lot to do with the rebound in gross margin from less than 1% last quarter to over 13% this quarter: they couldn't lose as much money on devices as they would have.

 

And here's another common refrain: absent the losses from the NOOK Division, B&N corporate would have reported a profit. Not much — less than $16 million — but it still would've been a profit.

 

Distinguished Bibliophile
keriflur
Posts: 6,180
Registered: ‎01-05-2010
0 Kudos

Re: NOOK Y/Y quarterly losses widen on (very slightly) increased sales

So, once Newco is fully spun off (and hopefully named something other than Newco), B&N will report a profit, probably every quarter?   That's good news, I think.

Doug_Pardee
Posts: 5,504
Kudos: 3,957
Registered: ‎03-09-2010
0 Kudos

NOOK Y/Y quarterly losses stable on slightly increased sales

[ Edited ]

The new quarterly numbers are out, and the NOOK division has managed to increase its profit margin, providing the same $51 million (USD) loss as in the prior year on slightly increased (+5.5%) sales. Or as B&N put it, "NOOK EBITDA losses were essentially flat ... as margin improvements were offset by higher investments primarily in product development and international expansion."

 

This might not seem like much, but it's the first real break in the depressing "the more we sell, the more we lose" reports that have characterized the NOOK business in the past. This time they sold more and lost only the same amount.

 

NOOK quarterly figures since fiscal 1Q2012
(US$ million, rounded, except Margin %):

QuarterSalesGross
Profit
Margin
%
Sales &
Admin
(Loss)
1Q20121912613.6%77(51)
2Q2012152138.9%64(51)
3Q2012427286.5%110(83)
4Q201216310.6%78(77)
1Q20131922613.6%83(57)
2Q20131601916,4%70(51)

 

But once again, without the losses from the NOOK Division, B&N corporate would have reported a profit. In fact, they came very very close even with the NOOK losses. Corporate losses for the quarter were only about half a million dollars, so they'd have had a $50 million profit without the NOOK business weighing them down.

 

Distinguished Bibliophile
MacMcK1957
Posts: 2,096
Registered: ‎07-25-2011
0 Kudos

Re: NOOK Y/Y quarterly losses stable on slightly increased sales

There is, of course, the possibility that profits on sales of ebooks and other content more than make up for the losses on the devices.  Basically, the King Gillette school of selling, named for the man who sold razors at a loss (or gave them away) in order to make money selling the blades.

Distinguished Bibliophile
keriflur
Posts: 6,180
Registered: ‎01-05-2010
0 Kudos

Re: NOOK Y/Y quarterly losses stable on slightly increased sales


MacMcK1957 wrote:

There is, of course, the possibility that profits on sales of ebooks and other content more than make up for the losses on the devices.  Basically, the King Gillette school of selling, named for the man who sold razors at a loss (or gave them away) in order to make money selling the blades.


Are ebooks not considered as part of the nook division?  I just assumed they were.

 

Distinguished Bibliophile
MacMcK1957
Posts: 2,096
Registered: ‎07-25-2011
0 Kudos

Re: NOOK Y/Y quarterly losses stable on slightly increased sales

I thought the Nook division was just selling the hardware, though I could be mistaken.

Doug_Pardee
Posts: 5,504
Kudos: 3,957
Registered: ‎03-09-2010
0 Kudos

NOOK Y/Y quarterly losses skyrocket on decreased sales

[ Edited ]

The third quarter (holiday season) quarterly numbers are out, and B&N had been warning they'd be bad. Even so, I'm stunned at just how bad they are. The NOOK business lost as much money in 3Q2013 as in the prior three quarters together. They also had a gross loss for the first time, and it's a doozy, with a gross margin of -30%.

 

NOOK quarterly figures since fiscal 1Q2012
(US$ million, rounded, except Margin %):

QuarterSales

Gross
Profit

(Loss)

Margin
%
Sales &
Admin
(Loss)
1Q20121912613.6%77(51)
2Q2012152138.9%64(51)
3Q2012427286.5%110(83)
4Q201216310.6%78(77)
1Q20131922613.6%83(57)
2Q20131601916.4%70(51)
3Q2013316(60)-29.9%130(190)

 

B&N also reported $59 million in inventory charges due to unsold NOOK units.

 

And the bad news wasn't just in device sales. Sales of digital content were up only 6.9% over the past year. This is way below the industry-wide numbers being reported by publishers, which suggests that B&N has lost significant market share.

 

Even with the heavy losses from the NOOK business, B&N corporate reported only a $6 million loss overall, due to solid performances from both the trade bookstores and the college bookstores despite somewhat reduced total sales.

 

Distinguished Bibliophile
bobstro
Posts: 3,521
Registered: ‎01-01-2012
0 Kudos

Re: NOOK Y/Y quarterly losses skyrocket on decreased sales

[ Edited ]

Doug_Pardee wrote:

[...] And the bad news wasn't just in device sales. Sales of digital content were up only 6.9% over the past year. This is way below the industry-wide numbers being reported by publishers, which suggests that B&N has lost significant market share.

 

Is that ebook digital content, or all digital content? I'm very curious whether video and apps are generating anything. B&N could've used another "50 Shades" bump by the sound of it.

 

Bummer about the inventory backlog. They'll have to sell those cheap. Hardware is a tough place to be nowadays with all the competition and confusion. Here again, I'd be curious which units are not moving, eink or color/media tablets?

Wordsmith
ProfReader
Posts: 1,135
Registered: ‎02-18-2010
0 Kudos

Re: NOOK Y/Y quarterly losses skyrocket on decreased sales

well turn out the lights they have blown it

flyingtoastr
Posts: 2,933
Topics: 52
Kudos: 2,855
Registered: ‎11-11-2009
0 Kudos

Re: NOOK Y/Y quarterly losses skyrocket on decreased sales


bobstro wrote:

 

Bummer about the inventory backlog. They'll have to sell those cheap. Hardware is a tough place to be nowadays with all the competition and confusion. Here again, I'd be curious which units are not moving, eink or color/media tablets?


Not exactly. BN follows general industry practice for the production of their devices: one lump order for the holidays, then other lump reorders and needed when stock is low. That means that they're taking a massive markdown this quarter for the warehoused stock, but the following quarters can still sell those devices at normal pricing at no production cost, making the following quarters seem more profitable. It's a cute little accounting trick.

 

As for what isn't selling - in my experience it's the eink readers, which are getting nearly impossible to give away at this point. The people who would use a dedicated reader have one, and they also seem to be the demographic that doesn't feel the need to upgrade every year to the new model - I still get tons of happy people plunking along on their 1st Gens.

 

WL remarked to take effect on the analyst call, somthing along the lines of "the dedicated reader market has been fully penetrated" or something.

Distinguished Bibliophile
bobstro
Posts: 3,521
Registered: ‎01-01-2012

Re: NOOK Y/Y quarterly losses skyrocket on decreased sales

Still, that normal pricing will have to be less and less as time goes on, no? I assume they'll recover costs at least.

 

Probably right on the eink readers, though that's discouraging. I've got my NSTs, but I am keeping an eye on them in case one that provides the same all-around readability and battery life, but a glow or similar screen (and ideally, capacitive touch -- sealed unit) becomes available. I realize I'm a pretty small demographic to target. I wonder if there's an expanded niche for a "rugged reader"? (See ImpliedConsent's posts for an example.) Think past Julie and so on.

 

So... if the disappointing media sales are largely ebooks, and the disappointing device sales are largely eink, that's ominous for our beloved little readers. My experience with PopSci and Discover subscriptions suddenly not working on them is likely to be the norm. Hopefully, basic ebooks will remain available, and not "enhance" them to the land fill.

 

Do you think this heralds a move to a more open tablet platform? I still have a hard time imagining B&N surviving the tablet wars with any kind of proprietary platform. After that, you've got a generic platform (Android?) running the NOOK app. Aren't you really fighting as an app at that point?