Barnes & Noble Education Looking To Read Positive Business Model Impacts, Says Analyst

Needham analyst Ryan MacDonald reiterated a Buy rating on the shares of Barnes & Noble Education Inc BNED with a price target of $4.
BNED's 3QFY23 revenue of $447.1 million came in well above the analyst's $406.0 million estimate, while adjusted EBITDA of $13.5 million came in below the analyst's $6.4 million estimate.
Total revenue grew 11.0% Y/Y, with the Retail segment increasing 12.4% Y/Y and the Wholesale segment increasing 5.2% Y/Y, partially offset by (4.5%) Y/Y declines in DSS.
The analyst had hoped for upside to FY23 numbers, but was more inclined by the updates around accelerated FDC conversion.
BNED plans to convert all existing customers in either Fall '23 or Fall '24, which will fundamentally improve the margin profile of the business.
Once converted, this existing learner base could represent an annual revenue opportunity of $1.4 billion, which grows to $5.5 billion as BNED continues to pursue the remaining 12mm undergrad students they do not reach today, the analyst added.
Coupled with 35% gross margins, the analyst sees the potential for significant adj. EBITDA margin expansion once the transition is complete.
The analyst remarked that the DSS segment prioritizes profitable growth, which is likely to be enhanced by integrations with OpenAI.
Price Action: BNED shares are trading higher by 8.14% at $1.86 on the last check Friday.
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