Shining New Light On nook Investment and nooks Sold

[tweetmeme source=”pricingright”]Barnes & Noble announced its Q2-FY10 earnings last week. Their balance sheet shines some new light on their cost of nook product development and marketing and the number of nooks they might have produced. nook was so successful that Barnes & Noble cannot anymore deliver one before Christmas nor can it sell through its stores. How many nooks were sold? B&N is silent about the number of nooks they sold, but from their latest balance sheet I estimate they sold about 200K-400K nooks, read on.

12/26/09 Update: Techcrunch says, based on its sources, 60,000 nooks sold but I stand by my 200K-300K estimate unless I get data on cost per unit that is different from the assumptions I made.

  1. Increase in Intangible Assets: Their Intangible assets jumped from $82 million in Q1 to $587 million.  This is surprising for a bookseller. Part of it should have gone towards acquiring rights to digital content and part  to product R&D. The latter cannot be capitalization of their product development costs (3 months is short time),  so I think they bought the design and other patents form outside.
  2. Long-term Debt: There is now long-term debt, to the order of $325 million, showing up in their books. There was no debt in the previous quarter. The long term debt definitely went into their nook product line – for manufacturing and marketing.   B&N does not own the factories, it rents capacity from Prime View International of Taiwan, who also owns the rights to e-Ink technology and makes those displays for all Kindle and Sony as well (source: GigaOm). To guarantee capacity B&N may have had to invest or at least cover part of the assembly line. But I think most of it went into design acquisition (described above).
  3. Increase in Other Long-term Liabilities: Another increase is their “Other long-term liabilities”, by about $240 million. There are no footnotes explaining this. For the purpose of this discussion I would allocate a good part of it towards its increase in Intangible asset (design acquisition).
  4. Cost of R&D: So the total cost to design and manufacture nook is about $500 million – that is going big for a bookseller!
  5. Accounts Payable: Their accounts payable increased by $500 million. It is expected that this would go up as stores build inventories for the Holiday season, but in the previous year it increased by only $200 million from Q1-2008 to Q2-2008. I do not think the other $300 went for stocking more books and merchandise, it must have gone to content suppliers, nook suppliers and for marketing campaigns.  Accounting for the rest, $100- $2o0 million (guesstimate) went to Prime View for making the nook.
  6. COGS for nook: The $100-$2o0 million is possibly allocated for the right to acquire capacity, labor and parts. If we assume half of that $100-$200 million went for parts and if we assume the cost per unit is $250, they made about 200,000 to 400,000 units. Which is what I said they should have manufactured based on the projected market.

If they indeed manufactured 400,000 nooks, given that they are sold out, they must have sold 200,000 to 400,000 nooks in just one month.  That is extremely impressive! B&N has indeed gone really big on nook but still missed the opportunity to price it right!

Footnotes:

The final number is based on the assumptions I made on allocating the step increase accounts payable, the total material costs and cost per unit. Any or all of which can be wrong but at least we have a small range of numbers to work with.

6 thoughts on “Shining New Light On nook Investment and nooks Sold

  1. From: Barnes & Noble boards
    http://bookclubs.barnesandnoble.com/t5/eBooks-Help-Board/OTA-Software-Update/td-p/431597/page/3

    ” It is estimated by financial analysts that 200 thousand to 400 thousand nooks were ordered, and all of these sold out in one month. Lets take a mid point of 300 thousand units. This fits well with the 178,000 units said to have been in a pending second shipment that others on this board were told about by Tech Support. It means they got slightly less than half their order on the first shipment, and by now they probably have the other half, (assuming the plane was able to get there in the storm).

    So somewhere around 150 thousand have already been shipped to customers, Maybe 200k.”

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  2. Pingback: Kindle’s best month ever, 400K Nook orders rumor « Kindle Review – Kindle 2 Review, Books

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