Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 24 October 2012 at 10:55 GMT

Barnes & Noble (BKS) up 6% on iPad mini price reveal; NOOK safe?

Partner - Senior Portfolio Manager / PP Capital Asset Management

Yesterday the tablet market got even more competitive. Apple (NASDAQ:AAPL) announced its 7.9 inch iPad Mini, aim at challenging the 7-inch devices currently on the market from Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) and Barnes & Noble (NYSE:BKS).

In the case of Barnes & Noble, which is a relatively small player in the tablet market compared to Amazon, Google and Apple, it seems as if investors worried that the company’s NOOK tablet would get crushed by the release of iPad mini.

The stock price of Barnes & Noble jumped 6 percent following Apple’s event yesterday, when the pricing structure for the iPad mini was revealed.  Now that the iPad mini is priced USD 100 higher than the 7 inch NOOK HD tablet (iPad mini 16GB USD 329 vs. NOOK HD 16GB USD 229), it might not be as much of a threat. 

Of course, from Apple's perspective, the iPad mini's price, ranging from USD 329 to USD 659, has been seen as negative development by many as it’s not ‘low enough’ to destroy the market share of lower-end tablets.That might exactly be the intention of Apple’s pricing, they have no interest being grouped with other low-end tablets – they want to be superior and for that consumers should pay a slightly higher price.

For the tech specs of the latest gadgets, check out Engadget’s comparison of 7 inch tablets.

Should Barnes & Noble be making tablets at all?

But does Barnes & Noble really need its own tablet? In my opinion they don’t! BKS should focus on what it does best, and that is selling books and other content. I understand the idea of producing a tablet, selling it at thin margins in order to push your own content (the ‘Amazon model’) which ultimately bolsters the margins.

I feel that Barnes & Noble is wasting its time and cash making its own tablet. How about making the ultimate reading experience through an application available on all devices, Microsoft, iOS and Android? Create the software, not the hardware!

In May, Barnes & Noble entered into a strategic alliance with Microsoft (NASDAQ:MSFT) under which Barnes & Noble will be the main reading application within Windows 8. That will definitely have an impact on Barnes & Noble’s selling of content.  Nothing has been confirmed though, and there haven’t been much news coming from the newly formed organization of BKS and MSFT.

Barnes & Noble - Share Price YTD

Investors saw the news of the Microsoft acquisition as an extremely exciting opportunity. But since the announcement little or nothing has happened. Yes, Barnes & Noble announced a new tablet (which was not powered by Windows as many had expected), but I expected more from the joint venture. There might be more to come, as the acquisition was just finalized earlier this month. Nevertheless, investors seem to have lost some faith in the Microsoft venture, as shares have dropped 27 percent since the announcement.

Yesterday’s 6 percent jump might please some investors, but I still believe Barnes & Noble will have a tough time gaining additional market share. I can only speak for myself, but I would happily spend USD 100 more and buy myself an iPad Mini rather than NOOK HD. 


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