As a consequence, Laura went back and asked to B&N as it was indeed growth (as it turned out later) or sales what they meant when referring to app and newsstand business. The analysis was helpful to infer that since numbers were not adding up, some of the underlying assumptions had to be corrected.

Incidentally, if you were right on the observation that the difference between the $277mln and $191mln in 1Q FY12 is only due to different accounting rules [Non GAAP (full sales) vs GAAP (net sales)], one could guess an approx. estimate of what 1Q FY12 net sales were and also what 1Q FY13 sales are.

If you were right, I am not sure, then the $86mln difference ($277mnl-191mln) would more or less be the 70% of sales that goes to big publishers… therefore gross sales (1QFY12) would be $123mln (=$86mln/0.7) and net sales close to $37mln (=$123mln*0.3).

Since ebook sales seem to have grown less than app and newsstand this 1Q FY13, they should have grown less than the average 46%.

Therefore current ebook net sales (1Q FY2013) should be in the range $37mln (assuming 0% growth) – $54mln (assuming +46% growth). The $42mln net sales for 1Q FY13, you suggest is incidentally is this range…

Couple of problems with your analysis.

1. GAAP rules require Barnes and Noble to report ebook revenues on a “net” rather than gross basis. IE, only the retailers “cut” counts as revenue. This is the difference between the two reported numbers, they have explained it many times. On the GAAP basis the overall ebook market is a third as large in terms of consumer prices, so 166 million for the quarter by your numbers.

2. Barnes and Noble stated that the GROWTH in app and newstand revenues was higher than the GROWTH in ebook sales. They didn’t say those units had outgrown ebooks on an absolute basis. On an absolute basis those units (which are also reported on a “net” basis) are probably still much smaller. I recall hearing $15 million (reported on a gross basis) for these units last year, so I would estimate about $10 million revenue (reported on a net basis) this year.

So to attain the market share they claim, Barnes and Noble would only need about 42 million in quarterly ebook sales. Added to the $10 million from apps and papers that would leave about $140 million for device sales. Since sales at Barnes and Nobles stores were $90 million(the “elimination”) numbers, that means they had $50 million sales at other retailers.

That seems believable. The numbers add up.

Also, they never double counted the “elimination” revenue. The “elimination” is only needed when they report both retail revenues and nook revenues together and sum the two.

I’ve long wondered too if BN and Apple have already captured the most devout readers who are likely to switch to an eReader. I suspected that many Nook holiday purchases last year were impulse purchases – not made by consumers that I would characterize as heavy readers. 6-8 months down the road (if not sooner) are those consumers going to be regularly downloading and reading eBooks? I suspect not.

Even though the college business may not be going gangbusters (that’s hard to tell without numbers), judging an investment as potentially bad requires reflecting everything the investment was actually in.