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Barnes & Noble's Nook Won't Meet Expectations

Barnes & Noble's Nook Won't Meet Expectations

Nook, the digital book and e-reader business that has helped keep Barnes & Noble (NYSE: BKS) afloat, did not meet sales expectations this holiday season.

In an SEC filing, Barnes & Noble said that based on "preliminary sales results," the company expects its holiday sales to fall below expectations. "The Nook business will not meet the company's prior projection for fiscal year 2013," the company added.

This announcement comes only one day after Pew Research Center revealed the results of a study involving e-readers and the transition to digital entertainment. Researchers found that 23 percent of Americans now read digital books -- up from 16 percent last year. Conversely, only 67 percent of Americans read paper books -- down from 72 percent last year.

Theoretically, this should have allowed Barnes & Noble to continue meeting or exceeding Nook sales expectations. However, there is another underlying trend that has prevented this from occurring: While consumers are more accepting of the digital format, they are more likely to read books on a tablet instead of a dedicated e-reader.

This is a problem not only for Barnes & Noble but for Amazon (NASDAQ: AMZN) as well. The Kindle Fire may be successful, but without any specific sales figures, it is impossible to say exactly how well the device is performing.

As of August, the Kindle Fire had acquired 22 percent of the tablet market in America. Amazon has yet to provide an update on the device's status.

While Barnes & Noble has bragged about the overall revenue earned from its Nook business (which includes tablets, e-readers and digital books), the company has yet to reveal specific sales or market share data.

Instead, Barnes & Noble is focusing on more positive details. The company rose more than seven percent today on the news that it had received a strategic investment from Pearson (NYSE: PSO).

"Pearson and Barnes & Noble have been valued partners for decades, and in recent years both have invested heavily and imaginatively to provide engaging and effective digital reading and learning experiences," Will Ethridge, Chief Executive Officer of Pearson North America, said in a company release. "This new agreement extends our partnership and deepens our commitment to provide better, easier experiences for our customers."

Ethridge added that the investment will "allow our two companies to work closely together in order to create a more seamless and effective experience for students."

Barnes & Noble investors seem to agree. Pearson investors are less enthused; that stock is currently down less than one percent.

Even so, investors should question the partnership and its ability to provide Barnes & Noble with a successful future. Brick-and-mortar bookstores are struggling and have been struggling for quite some time. Now Barnes & Noble's most promising division is in trouble as consumers switch to tablets, particularly those manufactured by competing firms.

Year-to-date, Barnes & Noble is up more than one percent. The company rose more than 12 percent over the last three months.

Follow me @LouisBedigianBZ

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