Video

#SaxoStrats
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
Denmark

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. 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail