When Microsoft invested $300 million in Barnes & Noble‘s Nook division in 2012, it appeared that the last big brick-and-mortar bookstore chain had found its savior.
The deal valued the Nook business at $1.7 billion — more than the market capitalization of Barnes & Noble at the time. The bookseller’s stock jumped on the news. Microsoft was to invest millions more in the Nook business. And Barnes & Noble would create e-reading content for Microsoft products.
Months later, the education company Pearson bet that the Nook was worth even more, buying 5 percent of the business at a price that valued it at $1.8 billion.
Since then, however, Microsoft’s investment has withered along with the Nook business.
On Thursday, the two companies parted ways, with Barnes & Noble buying out Microsoft for about $125 million. In other words, in just over two years, the value of the Nook business has lost more than half its value.
During the most recent quarter, Barnes & Noble reported on Thursday, the Nook division had sales of $64 million, down 41 percent from the same time a year ago. Less than a third of that came from device and accessory sales, down 64 percent year over year, while the majority came from selling e-books and other content to existing customers. Barnes & Noble plans to separate the Nook business as a separate company next year.
And yet despite these grim numbers, Barnes & Noble has reason to look favorably on its relationship with Microsoft.
The initial $300 million investment gave the bookseller an infusion of cash when it needed it most, allowing the company to stopgap losses after spending heavily to develop its own tablets. And through revenue sharing agreement with Microsoft, Barnes & Noble received a couple hundred million dollars more, according to people briefed on the matter.
Microsoft, meanwhile, was hoping that the Nook software would bolster its own tablet business, making it a more viable competitor to Apple‘s iPad. That didn’t pan out, and Microsoft was left committed to a declining Nook business that was adding little to its own ambitions in the tablet market.
Barnes & Noble’s ambitions to develop its own hardware had faltered as well, and earlier this year the bookseller agreed to partner with Samsung, a Microsoft rival.
Since Microsoft made its initial investment in the Nook business, Satya Nadella has replaced Steve Ballmer as the software company’s chief executive. And now Mr. Nadella has cut his losses with the Nook business.
Though the Nook business may be less valuable than it was two years ago on paper, Barnes & Noble appeared to get the better of its deal with Microsoft.
Barnes & Noble and Microsoft End Nook Partnership
The announcement came as the chain announced a 2.7 percent drop in revenue overall, but a 41 percent skid in its Nook division sales.