Why it Might Be Time to Short TiVo

Earlier this week, TiVo (NASDAQ: TIVO  ) introduced the Mini, a broadcast box that takes saved programs or content from your primary digital video recorder for watching in another room. A similar accessory called the TiVo Stream allows you to broadcast to an iPhone or iPad.

All of which would have been awesome two years ago, but not today. Why? Both services impose heavy fees, while requiring the services of a primary TiVo box: $99 for the Mini itself plus $5.99 per month or $150 lifetime service fee for the Mini, and $130 for the Stream. They're also dependent on wired Ethernet, because TiVo deems Wi-Fi too unreliable.

Worse, the Mini advertises access to streaming services, but lacks support for the two most popular: Netflix and Amazon.com's Instant Video.

Is TiVo flirting with disaster? Or is the company finally waking up to what TV consumers want? In this interview with The Motley Fool's Alison Southwick, Tim Beyers of Motley Fool Rule Breakers and Motley Fool Supernova, long a believer in the company's business model, argues that now may be the right time to go short. Please watch, and then leave a comment to let us know what you think.

TiVo may look troubled right now, but The Motley Fool's chief investment officer has an idea that could lead your portfolio to new highs. Learn more about his No. 1 pick for 2013 in our brand-new free repo, "The Motley Fool's Top Stock for 2013." Just click here for instant access, and we'll give you all the details of this under-the-radar company.


Read/Post Comments (8) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2013, at 10:37 AM, wvharbeson wrote:

    Wow, shorting TiVo now cause he's not impressed with two add ons they came out with in the last year. Without even a single metion of the civil suit conclusions coming up that could net over 1 billion dollars for TiVo, or their increasing income and customers based on numerous significant provider contracts that are starting to ramp up. OK!

  • Report this Comment On March 16, 2013, at 5:02 PM, TMFMileHigh wrote:

    @wvharbeson,

    We've seen suits add to TiVo's coffers before, only to see the additions result in unsustainable market cap gains.

    Mix in losses, strange product design, and rising competition from substitutes and I find it difficult to see investors enjoying big gains in 2013.

    Thanks for writing and Foolish best,

    Tim

    --

    TMFMilehigh in CAPS and on the boards

    @milehighfool on Twitter

    http://timbeyers.me

  • Report this Comment On March 16, 2013, at 11:28 PM, KaraBoga wrote:

    You got a few things wrong buddy. I hope you will correct those mistakes.

    1) what heavy fees does Tivo impose for Tivo Stream?

    2) wifi is fogging useless at times, that is why Tivo is providing MoCA. Why no mention of MoCA?

    And why no mention of on going litigation? Tivo is going after those steal Tivo's technology and made billions selling boxes.

    I think you are either clueless or you want to buy my Tivo shares on the cheap. No way you are getting my shares. I am long. Good luck shorting Tivo.

  • Report this Comment On March 17, 2013, at 9:18 AM, TechWzrd wrote:

    @milehighfool,

    I think it would be foolish to short TiVo at these levels. Even the most bearish commentary highlighting the risks to TiVo from disruptive lower cost OTT solutions doesn't lead to a conclusion that there is significant downside to TiVo. TiVo has a $100 million dollar share buyback in place with a 10b51 that automatically purchases shares if the stock price falls a certain percentage below the 50 day moving average. This creates significant resistance on the downside. The biggest risk to TiVo at this point is a litigation set-back with the Motorola/Time Warner Cable trial only 6-weeks away. Odds still favor a settlement or a trial victory for TiVo with its battle-tested '389' Time Warp Patent. While some litigation upside may be present at current levels there is still significant upside if TiVo receives a settlement or trial victory north of $700 million. TiVo is essentially debt free except for the $172.5 million convertible which you mention in your video. They have over $600 million cash on the books which will likely be put to use this year. An additional buyback would be very negative for shorts.

    From a core-business perspective, TiVo is rapidly growing cable operator (MSO) subs QoQ and Virgin Media revenue will start flowing through as high-margin 'service revenue' later this year. TiVo will easily be adjusted EBITDA profitable including litigation expense this year (FY14) and GAAP EPS profitable next year (FY15).

    The bottom-line is you should perform more research and look elsewhere for a short candidate.

    V/r,

    Sam Biller (@TechWzrd)

  • Report this Comment On March 17, 2013, at 11:08 AM, kwoooz wrote:

    Now for the bullish thesis...

    TIVO is my favorite stock idea. The company is misunderstood and the stock mispriced. TIVO has completely reinvented their business model from selling DVR hardware to retail consumers to providing a user interface/software for the set top boxes of cable companies worldwide. And this change in strategy has recently resulted in a major inflection point with their fundamentals (TIVO is finally growing subs significantly, etc.). Internet-to-the-TV/"advanced TV" (i.e., broadband-enabled TV) is the next huge secular development in tech/media and TIVO is at the forefront here with their patent-protected IP and impactful product. Cable companies have been caught flat footed re. the competitive threat of advanced TV (e.g., Apple TV, Roku, Google TV, Boxee, SimpleTV, Ceton, etc.) and need a quick solution to protect their business models while becoming much more advanced. They need to meld live TV, recorded content, VOD and Internet-delivered video, etc. BUT most can't do this themselves (extremely complicated, costly and time consuming) and have hence turned to one of the few companies that can help them -- TIVO! And TIVO is delivering: the company has signed twelve new cable deals over the last two years and is now the dominant interface for small/mid-sized US MSO's. And more deals are likely as cable companies witness other cable companies' success in rapidly deploying broadband-enabled set top boxes via TIVO (significantly reduces churn, etc.). TIVO is now offered by 9 of the top 21 US MSOs, but the remaining US opportunity is still multiple times larger than these current deals (10-15MM homes is the long-term domestic opportunity and TIVO has about 25% now). And international is a much bigger opportunity long term (100-200MM homes is the conservative long-term international opportunity). TIVO's balance sheet is stellar: they have $627MM in cash vs. a $1.57B market cap and little debt (only a $172.5MM convert, convertible at $11.16) and their whopping litigation and R&D expenses are finally starting to fall, which means significant EPS growth is nearing. TIVO is also a compelling litigation story as most US cable companies blatantly stole their DVR IP (there are ~43+MM DVRs in the US and only ~2MM of them are TIVO because cable companies stole TIVO's technology). TIVO's patent portfolio (~210 issued patents; ~389 pending) is tremendous and battle-tested: TIVO's 2011 $600+MM Dish Network settlement was one of the largest patent payouts in history; on 1/3/12, TIVO settled with AT&T for a minimum of $215MM (the ultimate amount should be $300MM+); and on 9/24/12, TIVO settled with Verizon for a minimum of $250MM (the ultimate amount should also be $300MM+). They also have pending lawsuits against Motorola Mobility (trial set for May; a positive Claim Construction ruling came out in December) and Cisco (trial set for March, 2014; Claim Construction hearing July 31, 2013) that could eventually be worth $1+B. (Time Warner Cable is a defendant in both cases). And then they will sue/settle with others (e.g., Cablevision) for hundreds of millions of dollars. Because of all of the above, TIVO is a likely takeout candidate -- and a TIVO takeout would be a drop in the bucket for an AAPL, CSCO, GOOG or MSFT, all of whom have the best balance sheets in the world (AAPL: $137B in cash; CSCO: $47B; GOOG: $48B; MSFT: $69B), want to get more into the living-room via "advanced TV" and want to build their patent portfolios. And there are other possible acquirers (SATS, ROVI, ARRS, Pace, et al); any one of these acquirers can take advantage of TIVO's $450MM in NOLs. All of this and yet short interest is quite high at ~9MM shares (7.2% of shares outstanding); but I believe these shares will need to cover as the thesis above progresses and as short sellers finally start realizing that TIVO is not a DVR company! My fundamental target is $15-16 -- but a takeout could easily be done for $20+. If I am wrong, the downside in the stock is quite limited given TIVO's tremendous balance sheet/brand name, $85.1MM stock buyback program (via a 10b51 plan that automatically purchases shares when the stock falls below the 50 DMA), $450MM in NOLs and high short interest. So, the risk/reward is very favorable here. The short case on TIVO is way too obvious and dated: losing owned & operated subs, never earned a profit, "old" technology, etc. -- but this thesis has become old news as TIVO continues to completely change their business model, innovate, grow subs and get rewarded for their DVR IP.

  • Report this Comment On March 17, 2013, at 3:21 PM, fasteddie4fools wrote:

    Tim,

    I think the two previous posts have adequately addressed the foolishness of shorting TiVo.

    The observations that I make here are primarily factual. I realize that you said you haven’t begun to research TiVo much, but your post unfortunately has some basic facts wrong, and these may have caused you to mischaracterize TiVo as some sort of technology laggard that is late to the game with these products.

    For instance, when you discuss the features of the new TiVo Mini and Stream…. you say that "both services impose heavy fees". To me, this language implies that the Stream requires a monthly services fee, and yet it does not. You also make an inaccurate comparison by contrasting the Mini and its monthly fee versus Apple TV and Roku, and how neither requires a monthly fee. But these devices do not provide access to linear TV from your cable company. Show me a box that enables you to deliver linear content from your cable company that does not require a monthly fee. ‘Nuf ced. Or maybe not. Your article also doesn’t state that the TiVo Mini may, in fact, be a much cheaper approach versus having multiple cable boxes in your home. So you have created the impression that this is a costly solution, when it may in fact be cheaper than the status quo.

    On the technology front you have also created an inaccurate impression. You say that both devices are “also dependent on wired Ethernet, because TiVo deems Wi-Fi too unreliable." While one could use Ethernet with TiVo's Mini, not everyone has their house wired with multiple Ethernet connections. To overcome this limitation, the Mini utilizes a technology called MoCa (multi-media over coaxial) so that you don’t have to rewire your home. This technology uses a home’s existing cable wiring and is therefore a cost effective, money-saving approach. Regarding the Stream, it is true that it is hardwired to your router. However, it does in fact utilize wireless technology to transfer or “stream” video to your iPad…anywhere in your home (and when permitted, much of the content is portable so you can take it with you). So here again, your characterization is inaccurate and misleading. These are sophisticated, elegant solutions that enable a true “whole home” set up: one TiVo DVR and a bunch of peripheral TiVo devices running off of it.

    I do concede that you have identified a serious limitation in the Mini in that it does not currently support Netflix and Amazon out of the box. However, this is no reason to short TiVo! And contrary to what you say, TiVo is not running out of catalysts. TiVo is entering into litigation against Motorola Home and Cisco in which it is allegedly seeking "Billions" in damages. Trial versus Moto begins in May. So against a market cap of $1.6 Billion, and given the company's fundamentals are shifting into profitability, now is not the time to short TiVo – so delete that old show, it’s over.

    fast_eddie

  • Report this Comment On March 18, 2013, at 11:42 AM, axlerod wrote:

    Tim,

    It would be good if you addressed the detailed and thoughtful counter points made by kwooz and fasteddie. Also curious to know how much research you do before writing your articles.

    Axlerod

  • Report this Comment On June 10, 2013, at 2:42 AM, scamel007 wrote:

    You left out another important detail. TiVo DVR box so far superior to everything out there it makes everything seem out of date. I am not a TiVo stock holder but you would have a hard time prying my Tivo remote out of my hands. Lifetime memberships are a great deal.

    Also my TiVo supports Netflix streaming. I only pay the Netflix fees

Add your comment.

DocumentId: 2316605, ~/Articles/ArticleHandler.aspx, 4/18/2014 9:27:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement