Shares of Barnes & Noble (BKS) closed down $2.31, or 17%, at $11.24 after the company this morning said it is pursuing strategic operations for its Nook electronic book reader and tablet business, based upon the “rapid growth” of the business.
Barnes also cut its full-year revenue view for the fiscal year ending in April to $7 billion to $7.2 billion, from a prior $7.4 billion. Analysts have been modeling $7.3 billion.
That prospect could make Barnes an acquisition target, wrote Maxim Group’s John Tinker in a report to clients this afternoon.
Tinker, who maintains a Buy rating on Barnes shares and a $20 price target, notes that the sales of Nook devices alone justify a higher price, in his view: “On a conservative basis, the NOOK alone with $1.5B in e-book and e-reader revenue could be worth $900M at 0.6x revenues, about $13 per share. However, Nook is growing 70% compared to Dell (DELL) at 2%.”
Barnes has succeeded in computing devices where the tablet efforts of Research in Motion (RIMM) and Hewlett-Packard (HPQ) have failed, he opines, with Nook having 23% share of the “e-reader” market.
Tinker thinks the deal math works out to something even higher based on comparable M&A:
A 1x multiple of revenue would be $1.5B, about, $22 per share. Recent internet IPO’s have been trading at revenue multiples up to 8x, suggesting potentially a far higher valuation. KOBO – a small Canadian e-reader company bought in November 2011 by Japanese Rakuten for an estimated $315M for the 51% owned by Indigo Books suggesting that the full value was over $600M.