Book giant projects huge sales

BarnesandNoble.com is ready to go full force against its competition in the new year, projecting today that sales for its online bookstore will exceed $100 million.

The revenue growth of the online subsidiary of Barnes & Noble book stores (BKS) has to date been mimicking that of its competitor, Amazon.com. When Amazon was a $2.2 million company back in June 1996, its revenues grew sequentially by approximately 100 percent in the two quarters that followed, and in December 1996, it reported $8.4 million in revenues.

BarnesandNoble.com, which posted similar quarter-to-quarter revenue growth during the past two quarters, is expected to generate $8 million in revenues for the quarter ending January 31.

Analysts say that, given Barnes & Noble's strong presence in the brick-and-mortar world, in contrast to Amazon's history as a pioneer in online book selling, the best way to compare revenue growth between the two companies is to look at figures reported for periods when sales at both were at similar levels.

Analysts say BarnesandNoble.com's $100 million projection for 1998 isn't farfetched. When the company's prospects are compared to those of Amazon, the growth makes sense.

Amazon.com reported revenues of $8.4 million for its December quarter in 1996. For the next three quarters, it reported revenues of $16 million, $27.9 million, and $37.9 million, respectively. Those four quarters equal $90.2 million in total revenues.

During this period, however, Amazon's sequential revenue growth rate has declined, falling from 90.4 percent during its December-to-March quarter to 36 percent during its June-to-September quarter.

Genni Combes, an analyst at Hambrecht & Quist, said she is not concerned that the company isn't growing as fast as it was a few quarters back.

"Clearly 100-percent sequential growth isn't sustainable," she said, adding that it is too early to say if Barnesandnoble.com is taking market share from Amazon. "This is such an emerging market that it is hard to predict, but e-commerce is taking off and it is becoming mainstream. We could still see another surge in growth."

Combes expects Amazon to report $50 million for its fourth quarter and a loss of 46 cents a share. The company is expected to report revenue of $288 million for full-year 1998, and a loss of $1.30 per share. Combes said the company is poised to become profitable in Q3 1999.

It's difficult to say, though, whether BarnesandNoble.com will face a similar pattern in the quarters to come, especially as competition in the online book selling space heats up further. Borders Books, having pushed back its initial target date of early January, now is scheduled to go live with an online e-commerce site sometime during the first quarter. In addition to books, Borders is expected to offer movie and music sales in an effort to increase its competitive edge. Crown Books, another book superstore giant in the physical world, also is scheduled to launch an online e-commerce site, sometime in February.

Revenue, however, isn't the only measure by which Barnesandnoble.com has been following the performance of Amazon.com.

John Lyons, an analyst at ABN AMRO Chicago, said B&N's best-selling books are computers and technology titles. Amazon.com's 1996 sales were much the same. In 1997, however, Amazon.com's best sellers were more mainstream [See related story].

Lyons said this is because B&N currently is attracting people who already are familiar with the Internet. He added that what will drive sales going forward is an increase in the number of more average computer users coming online.

"Amazon.com is doing an incredible job, but ask anyone who is not online what Amazon is, and chances are they won't know," Lyons said. "Then ask anyone what Barnes & Noble is, and they will say books. When those people come online and are interested in buying books, they will go to a brand they already know."

"Web book selling becomes more of a force when more of today's book-buyers surf the Web, not when today's Web surfers are buying books," he added.

Barnesandnoble.com said its sales for the nine-week holiday season, ending January 3, were $5.6 million. The company said it has had 250,000 unique customers. Additionally, over 40 percent of its business came from repeat buyers.

In Amazon.com's most recent quarterly results, the company said that cumulative customer accounts grew to more than 940,000 by September 30, 1997, an increase of 54 percent from 610,000 customer accounts at the end of June 1997. Repeat customer orders represented more than 55 percent of orders placed during the quarter ended September 30, 1997.

As for competition in 1998, Lyons said that there is not a finite pool of consumers that these book sellers are splitting. As more and more people come online, he said, there will be enough sales for everyone.

Lyons also noted that Barnesandnoble.com is going to add some marketing muscle in 1998 in an effort to raise awareness of its online store.

"As more people come online, the bigger the pie," he said.

Just like in traditional retail operations, selection and service will play a significant role in consumer choice. Just like with the popularity of search sites, those companies that can get users to bookmark their pages likely will build a stronger base of permanent customers.

"The whole online retailing model is contingent upon that bookmark," Lyons said. "It is a lot cheaper to get [customers] to go to you directly. Retailers would prefer not to pay 7 percent to affiliates if they can avoid it."

CNET reporter Stephanie Miles contributed to this report.