Is Barnes & Noble Really This Desperate?

Everyone knows that Barnes & Noble (NYS: BKS) is in a desperate fight for its life. Outflanked by (NAS: AMZN) early in the e-book war, with the latter currently rumored to have multiple new devices slated for release, the bricks-and-mortar bookseller has been scrambling to catch up ever since.

Despite this, I nevertheless was surprised to find out that today's headline daily deal from LivingSocial featured an 8GB Nook Tablet for $169, a 15% discount off its usual price of $199. Although this may not seem overly ominous at first glance, a closer examination reveals the emergence of a new and disturbing trend.

The dark clouds gathering over B&N
It's not uncommon, of course, for retailers like B&N to discount their wares. In this particular case, however, three factors make the company's decision stand out.

First, this is the third time in less than a month that it has discounted its flagship device. At the end of June, it gave away $30 gift cards to purchasers of its 16GB model. Just last week it upped the ante to $50. This is not the type of behavior you expect from a retailer that's profitably moving inventory.

Second, it's not like the struggling bookseller has margin to just give away. Not only does the company not make money, but in four out of the last five quarters it's recorded losses. In the last two years alone, losses have totaled $149 million, a princely sum for a company in B&N's position.

And finally, none of its competitors have found it necessary to stoop to daily deals as a substitute for original and genuine marketing. I don't know about you, but I have a hard time imagining Apple (NAS: AAPL) , which recently missed estimates for second-quarter earnings, willingly splitting the proceeds from the sale of discounted iPads with the likes of Groupon.

The depth of B&N's despair
B&N's financial problems manifested themselves most recently in the middle of last month when the company reported, let's just say, less-than-impressive results. Its net loss for the three months ended April 28 was $57.6 million, or $1.08 per share. While smaller than the $59.4 million loss in the same quarter a year ago, it still missed analysts' expectations of $0.92 per share.

To add insult to injury, moreover, the company recently announced that it had inadvertently overpaid its CEO by awarding him 1 million stock options valued at $10.6 million, evidently exceeding the amount allowed under the company's 2009 compensation plan. It'd be funny if it weren't so pathetic. The board is now prostrating itself before shareholders to save face.

Indeed, the bookseller's mounting troubles are one of the reasons that my colleague Travis Hoium suggested selling B&N short. "The bookstore is a thing of the past," says Travis, "and Barnes & Noble's stores are a dying business. ... The Nook was a nice effort, and the company has seen sales of digital products grow 119% in fiscal 2012, but the company's financials have taken a dive."

Shares in the bookseller jumped earlier in the year after it was reported that Microsoft (NAS: MSFT) had invested $300 million in the company in return for a 17.6% stake in its e-book division and college bookstore unit. This was on top of the $204 million that it scored last year from Liberty Media (NAS: LMCA) , the American media conglomerate chaired by legendary investor John Malone. Since announcing earnings, however, B&N's shares have slid 12% to the mid-$13 range.

Don't buy this stock
Even though I don't see a bright future for the bookseller, I wouldn't go so far as Travis did and suggest shorting B&N stock. For one, the price is already well off its 52-week high. And two, too many investors have beaten you to it, as nearly half of the company's float is already sold short.

That being said, I would urge investors that are thinking about investing in B&N to think twice. Whether it's one year, five years, or 10 years, this business won't be around forever, and I'd hate to see it take your capital to the grave. One place investors have been stashing their cash, however, is in Apple stock. The company has risen to prominence as the most valuable company in the world, but there are a number of catalysts on the horizons investors have to be aware of. In this premium research report written by our top technology analyst, you'll learn about all of them. You'll also receive a full year of updates to boot, so click here now to learn more.

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