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Online books war heats up
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August 20, 1998: 11:09 a.m. ET
Barnes & Noble to take Web site public, steps up battle with Amazon
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NEW YORK (CNNfn) - Barnes & Noble Inc. said Thursday it plans to spin-off its barnesandnoble.com Web site in an initial public offering, a move that will likely heat up competition in the online bookselling industry.
Barnes & Noble, the world's biggest retail bookseller, has been playing catch-up to Amazon.com Inc. (AMZN) in the electronic commerce arena.
Nicole Vanderbilt, electronic-commerce analyst at Jupiter Communications, said the spin-off gives barnesandnoble.com a chance to become more competitive with Amazon.com.
"A lot of companies with large assets behind Internet ventures are not able to compete as effectively as online-only competitors," she said. "This gives barnesandnoble.com more independence and flexibility to function as an Internet retailer as opposed to a subsidiary under a larger corporate umbrella."
Barnes & Noble announced its IPO plans in its second-quarter earnings statement. The company said its retail business reported an operating profit of $19.6 million, or 12 cents a share, for the quarter, a 103-percent jump from the year-ago quarter.
Barnesandnoble.com, however, reported a net loss of $13.6 million, or 20 cents a share, for the quarter. The combined operations posted a net loss of $5.7 million, or 8 cents a share.
Not that Amazon.com has exactly been setting the world on fire with its earnings reports. Last month, the company reported a second-quarter loss of $15.8 million, or 33 cents a share. Nonetheless, its stock continues to trade in the $120 range.
Analysts believe the spin-off will allow Barnes & Noble to keep valuations high for both businesses, even if the Web site continues to lose money.
"Barnes & Noble is hoping [the Web site] will be subjected to the same rules as Amazon is as an Internet company, where their stock is trading at an exorbitant price while the company is losing a lot of money," said Erica Rugullies, electronic commerce analyst at Giga Information Group. "It also provides them with more protection, so they don't keep losing money through their Internet site and have their stock price go down."
"If you look at the valuation of Amazon, their stock is trading at eight times revenues," said Amy Ryan, analyst at Prudential Securities. "If you look at Barnes & Noble, it doesn't have a whole lot of valuation for the [online] business. By spinning off the barnesandnoble.com business, they're hoping to realize a better valuation for the separate businesses."
Barnes & Noble said it will make its IPO filing with the Securities and Exchange Commission within 30 days.
The news sent Barnes & Noble (BKS) shares up 3-3/4 to 41 in early trading. 
-- by staff writer John Frederick Moore
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