TiVo Finally Gets It

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Maybe TiVo (Nasdaq: TIVO) is starting to come around. The digital-video-recorder giant posted better-than-expected quarterly results. It also made some welcome strategic shifts that find the company thinking with its noggin instead of its gut.

Let's dig into TiVo's fourth-quarter earnings numbers. The company posted a loss of $0.19 a share for the quarter on a 22% uptick in service and technology revenue. That is better than the $0.25 per share that TiVo had posted as a deficit a year earlier. Analysts actually figured that the loss would have widened after TiVo warned of higher holiday marketing costs back in November.

That was when the company was set to introduce its heavily subsidized "free after mail-in rebate" offer at the retail level. The company had entry-level single-tuners that it wanted to move, and it was initially encouraged by its move to offer free TiVo systems online with higher monthly subscription rates.

The company is not expecting to turn a profit this new fiscal year, but at least it plans to gradually phase out these profit-chomping subsidies over the course of the year. It's about time! Let TiVo sell itself.

Over the past year, the number of TiVo-owned subscribers has grown from 1.5 million to 1.7 million. The company has another 2.7 million users through its partnership with DirecTV (NYSE: DTV), but don't get too attached. DirecTV has been weaning those users off TiVo and over to its own DVR box. They also contribute a pittance financially to the subscription revenue that TiVo gets from its TiVo-owned base, generating just $1.02 per user every month compared with the $8.99 average monthly revenue per TiVo-owned subscriber.

Yesterday also marked the debut of TiVo's compatibility with Amazon.com's (Nasdaq: AMZN) Unbox service. TiVo subscribers that have a broadband-connected system can have Amazon's digital rentals and purchases downloaded directly into their TiVos.

I decided to kick the tires of the new offering last night, by ordering up an episode of the new sitcom The Winner. The service worked as seamlessly as promised.

It did take a little longer than I expected to complete (about two hours). And unlike the PC-based version of Unbox, you have to wait until the download is complete before you can start watching. Still, it's a small price to pay for the television playback without any setup hassles.

TiVo and Amazon have a winner here. And if TiVo keeps growing its own subscriber base while weaning new users off costly rebates, its days as a forgotten stock trading in the single digits may be history.

TiVo and Amazon.com are Motley Fool Stock Advisor newsletter recommendations. If you know how to work a TiVo remote then you know how easy it is to nab a 30-day trial subscription to the newsletter service.

Longtime Fool contributor Rick Munarriz does love his TiVo and he does own shares in TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.