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August 20, 1998

BARNES & NOBLE TO SPIN OUT INTERNET UNIT WITH IPO

By CBR Staff Writer

Book retailing giant Barnes and Noble Inc announced that it will be spinning-out its online operations, barnesandnoble.com, with initial public offering later this year. The company said that within the next 30 days a registration statement will be filed with the Securities and Exchange Commission for the IPO, which it said will be subject to market conditions. Conditions in the overall IPO market have been poor recently, but internet-related stocks have been some of the only issues that seem immune to the general malaise. The money generated from the offering will help the online business compete with market leader Amazon.com Inc. Investors liked the news, boosting Barnes and Noble shares up $2.75 to close at $40. According to second-quarter results announced by the company Thursday, barnesandnoble.com’s revenues for the quarter rose to $12.5m, an increase of 470% over revenues of $2.2m for the second quarter of 1997 and a 33% increase from $9.4m in the first quarter of 1998. The unit showed a net loss of $13.6m for the period. As of August 1, barnesandnoble.com claimed more than 720,000 customers in 175 countries, an increase of 44% from 500,000 customers in 158 countries as of May 2. Revenues from repeat customers accounted for roughly 50% of its second- quarter revenues. The site’s Affiliate Network also grew to over 17,000 sites and includes strategic partnerships with many of the highest-traffic web sites, such as Microsoft, Lycos, Tripod and ZDNet, as well as an exclusive relationship with America Online Inc’s proprietary service. The company’s main competition comes from Amazon, with whom it had a legal battle last year over the latter’s claim that it was the world’s largest bookstore. Another rival for barnesandnoble.com, Borders.com, only jumped from the retail world into the online space in May (CI No 3,408) and may have trouble keeping up with the pack. Last month Amazon announced that it added 880,000 customers during the second quarter to give it more than 3.1 million, compared to 610,000 one year ago. It said repeat customer orders represented more than 63% of orders placed during the quarter ended June 30. Amazon reported second-quarter net sales of $116m, an increase of 316% from the year-ago quarter’s $27.9m. The company’s net loss for the period was $21.2m, which included acquisition-related charges of $5.4m. Amazon shares have been one of the amazing success stories of the past year. The company went public at $18 per share in May of last year, and the shares have since risen to $129.125, a meteoric rise of nearly 620% in a little over a year. That share price, which was Thursday’s close, gives the company – which has yet to see a penny in profits – an astounding market capitalization of $6.44bn. Meanwhile, Barnes and Noble, which has a successful retail chain business with real properties and significant inventories, is only valued at $2.73bn based on Thursday’s closing price of $40. Thus, the float seems like a logical step for the company, both to take advantage of the appetite for internet stocks and to alleviate the financial drag on the retail business which has posted an operating profit of $19.6m, a 103% increase from the year-ago quarter.

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