Want to know what I really loathe when it comes to stocks? Ch-ch-ch-ch-changes. More specifically, changes that put off profitability. That's where things stand with TiVo (Nasdaq: TIVO ) today.
Yesterday the pioneering maker of digital video recorders -- you know, those neat devices that let you pause live television -- announced what should have been a good quarter. Except it wasn't. Guidance ruined the party. Indeed, the stock is down more than 14% as I write.
Not that the numbers were bad, mind you. Earnings per share were breakeven for the first time since the Johnson administration. (Yeah, I know, I'm exaggerating. Bear with me. I'm making a point.) And revenue from TiVo service was up more than 65% year over year. That's because TiVo's subscriber base has nearly doubled over the past 365 days. Gross margin benefited, too, up by more than 45 percentage points.
Truth is, this is exactly the kind of performance I was hoping for back when I wrote about the company's Rule Breaking qualities in June. (Partial story can be found here. Full story is here, at the Rule Breakers site. Take a risk-free trial and get immediate access.) Now, none of it matters. That's because new CEO Tom Rogers wants to shift strategy. Listen to this quote from yesterday's earnings announcement:
"Driving growth in the number of subscriptions at TiVo is the biggest critical challenge we face. ... Approaching this area more aggressively than we have in the past requires additional investment in subscription acquisition. We will be announcing a number of new promotional initiatives in the fall, one of which combines a hardware and service offer ..."
We can't say for sure exactly what this means, except that the so-called sustainable profits that were forthcoming in Q4 are no longer. Instead, TiVo has to nab more subscribers on its own, and that means selling more hardware and lower margins.
To be fair, I can't blame Rogers for the move. Much as I hate the idea of TiVo switching gears toward selling boxes again, I have to respect his need to protect the overall business, especially if there's concern that partners such as DirecTV (NYSE: DTV ) , which will soon head for greener pastures, and Comcast (Nasdaq: CMCSA ) , which is expected to get on board next year, won't be rich channels for new subscriptions, as it now appears. Just don't expect me to like it or to invest. I won't be doing either.
You don't need to rewind. We've got all of your TiVo-related Foolishness right here:
- Start with the Foolish fast facts on the quarter.
- Didn't we already know TiVo would be losing DirecTV? Apparently not.
- More ads are going digital. That could be good news for TiVo, especially if it channels Google.
- TiVo was the next big thing once. Look how that's turned out over the past three years.
Fool contributor Tim Beyers still pines for a real TiVo. Sigh. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile here. The Motley Fool has an ironclad disclosure policy.