Is it enough when your company becomes the household name in a given category? If you're considering investing in TiVo (Nasdaq: TIVO ) , the company synonymous with the digital video recorder, you're likely asking that very question. Today we will dig a little deeper to reveal the company's strengths, weaknesses, and new overseas opportunities.
Strengths: TiVo me
Anyone worth the price of their flat-screen knows the name TiVo. We've conjugated it into a verb, and we talk about "TiVoing" shows even when our DVR is not a TiVo product. Frankly, it's all TiVo to us. So, yeah, you could call that some serious brand awareness.
Dominance in the popular culture lexicon doesn't come easy, and it's particularly sweet when it reflects a behavior that consumers hold dear. Simply put, appointment television is fading. Fast. And viewers also are increasingly saying "no thanks" to the deluge of commercials. TiVo is right there on the couch with you, to lend a hand on both counts. The company has put smart money into developing technology that works well, and it has differentiated itself from some of the generic hangers-on in the category.
At the end of November, TiVo had close to 2.7 million subscribers, 1.5 million of whom are "TiVo-owned" (meaning they get the service through a TiVo set-top box), and the rest subscribe through their cable or satellite provider.
Weaknesses: O subscribers, where art thou?
Yet despite its celeb status, TiVo is facing subscriber erosion and has been for some time. Its monthly churn or cancellation rate during Q3 was 1.7%, up from the prior-year quarterly rate of 1.4%. Not earth-shattering on its own, but a sign of a continued trend that requires attention. Consider that the company's current subscriber count compares to a peak of 4.4 million subs three years ago. Ouch.
TiVo posted its ninth straight quarter of adjusted EDITDA profitability, and reported a quarterly loss during the third quarter of $6.7 million, or $0.06 per share, compared to a net loss of $900,000 in Q3 2008.
So what's the problem? Licensing deals in the States are eroding as providers come up with alternate -- and sometimes cheaper -- DVR options to hawk with their services. And TV viewers aren't particularly inclined to purchase another one-off box to sit on their shelf, even one from TiVo. Couple that with the lingering effects of the economy, and TiVo-owned subscription gross additions tumbled 25% during the third quarter, to 34,000 from 44,000 in the year-ago quarter. Cable subscriptions declined by 123,000 from the prior quarter, even given the adjustment due to inflated reporting of TiVo subs by DirecTV. If you're looking for a bright side, subscriber acquisition costs also fell, 48%, but that's not the way a service provider really wants to save cash.
Opportunities: It's a small world after all
No digital video recorder is an island, and TiVo is savvy enough to know that its ability to play well with others is its greatest opportunity for growth. In the States, it still gets the lion's share of subscribers via DirecTV (NYSE: DTV ) . A nascent deal with Comcast (Nasdaq: CMCSA ) looks promising and is already yielding a little "free" advertising via the cable operator's advertising spots in some markets touting the benefits of TiVo. Also upcoming is a distribution deal with Cox Communications, which is progressing out of the test phase and into early deployment in some New England markets.
A new collaboration with Best Buy (NYSE: BBY ) kicks off in 2010, and though details are sketchy, Best Buy is a heck of a marketer and is heavily incentivized to push TiVo integration. TiVo also recently inked content deals with Amazon.com, Disney, Blockbuster, and Netflix (Nasdaq: NFLX ) .
But the company's biggest opportunities appear to lie across the pond. A new partnership with Virgin Media, which touts TiVo to Virgin's 4 million subscribers, promises to open new doors in the United Kingdom. The company recently touched down in New Zealand with a similar deal.
Threats: See you in court?
Still, despite its "all together now" public persona, TiVo can't seem to stay out of court. It's still mired in litigation with EchoStar, with EchoStar appealing its $200 million loss over TiVo's Time Warp patent. In August, TiVo lashed out in court against AT&T (NYSE: T ) and Verizon (NYSE: VZ ) , alleging violation of at least three patents, including Time Warp.
Of course, when you hold as many patents as TiVo, it's not uncommon to clock time in front of a judge. Trouble is, myriad -- and time-consuming -- cases can drain finances and distract from the task at hand. TiVo also is pouring big bucks into R&D. Again, a necessary step, but one that comes out of an already cash-poor situation.
Is TiVo channeling its resources in the right direction? Does the company make you want to pause to check out its prospectus, or are you ready to hit the fast-forward button? Let us know what you think in the comments section below.
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