Shares in the online retailer of books were down 56 cents, or 23 percent, to $1.84 in early trading.
The New York-based company reported soft fourth-quarter revenue of $103 million, falling far short of estimates of around $130 million. It also said the full-year, pro forma 2000 loss is now expected to be $1.05 to $1.08 per share, greater than the consensus estimate of a loss of 95 cents a share.
The company blamed an environment of slower consumer spending, but analysts said the acquisition of Fatbrain.com and poor company planning are also to blame.
A rare rating
Prudential Securities analyst Mark J. Rowen downgraded the stock to a rare "sell" rating from a "hold." His price target dropped to a modest $1 from $7, and his full-year 2001 revenue estimate fell to $414 million from $696 million.
"In addition to the poor financial performance in the quarter, we are extremely uncomfortable with the lack of visibility provided by management," Rowen said in a research note. "Due to the significant miss on financial targets in two of the past three quarters, we question whether management has a grasp on the drivers of its business."
The analyst said the shortfall stemmed from a combination of dilution from the Fatbrain acquisition and higher operating expenses due to the company's recent marketing agreement with Yahoo.
He said the company's aggressive revenue-growth targets--future revenue of approximately $400 million in full-year 2000, approximately $700 million in full-year 2001, and more than $1 billion in full-year 2002--were far too aggressive, leading him to doubt the company's planning abilities.
Barnes&Noble.com "has now missed revenue and earnings targets in two of the last three quarters...(and) has not updated guidance for the Fatbrain.com acquisition in a timely fashion, nor has it, in our opinion, provided timely information on revenue and earnings misses," Rowen said.
A market reaching saturation
The downside isn't limited to just Barnes&Noble.com, he added. "In our opinion, the online book market is approaching saturation in online households, and as a result, growth rates for (Barnes&Noble.com) as well as industry leader Amazon.com have slowed considerably."
Montgomery Securities analyst Tom Courtney maintained his "market perform" rating on the stock and said he would hold out for more detailed guidance when the company reports full results Feb. 2.
The analyst remained optimistic, saying that the company may regain strength if it can "leverage its cross-channel assets in order to generate profitable growth."
Goldman Sachs analyst Anthony Noto reiterated his "market performer" rating and lowered his 2001 revenue forecast--to $445 million from $600 million--"to reflect the slower top-line growth seen in the second half of 2000."
"Based on the slower growth outlook, we continue to see limited upside to the stock price," Noto added.