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Barnes & Noble stock stumbles

Barnes & Noble?s stock took a tumble after the company told market analysts that its Internet business won?t be profitable this year.

Barnes & Noble?s (BKS) stock took a tumble today after the company told market analysts that its Internet business won?t be profitable this year because of higher-than-expected marketing expenses and lower price margins.

The online book-selling business will take a loss of about 10 cents per share for the fiscal year ended January 10, and a loss of 10 cents to 18 cents a share for 1999.

Barnes & Noble?s stock dropped 2 7/8 points, to 28 7/8, in response to the news.

The company?s earnings have dropped off significantly since May, when its online bookstore was launched. The earnings for the quarter ended January 31, the last quarter before the Internet effort debuted, were 91 cents per share, compared with 6 cents per share and 2 cents per share for the next two consecutive quarters. Analysts don?t expect BarnesandNoble.com to be profitable until the year 2000.

The company expects $25 million to $30 million in sales for the online business for 1998, and sales of $100 million to $125 million for 1999, depending on marketing and advertising expenses.

Analysts were not surprised by news of Barnes & Noble's dip, especially given rival online retailer Amazon.com?s struggle for profitability--Amazon recorded a loss of 28 cents for the second quarter of this year.

"If you cut back on advertising, you can make the company profitable sooner," said analyst Dave Ricci of William Blair. "But you cut back on growth."

Ricci attributed the stock loss to profit takers and unrealistic expectations from investors. "Some people out there thought that the company would be able to build this thing aggressively without incurring any losses," he said. "Just because I wasn?t surprised, doesn?t mean everyone else wasn?t surprised."