Foolish Forecast: TiVo Tanked

It's been six long months since TiVo (Nasdaq: TIVO  ) made history with its first, and so far only, profitable quarter. The DVR pioneer slumped right back into the red last quarter, though. Can it make a comeback with Wednesday's fiscal third-quarter 2008 earnings news?

What analysts say:

• Buy, sell, or waffle? The 16 analysts who still follow TiVo don't think so. Giving the stock eight buy ratings, five holds, and three sells, on average they predict ...
• Revenue. ... 8% sales growth to $56.7 million ...
• Earnings. ... and a loss this quarter that's a penny greater than one year ago -- $0.13 per share.

What management says:
TiVo has been pretty quiet lately, filing no really interesting 8-Ks with the SEC since the company last reported earnings. But even if management thinks nothing "material" is going on, our analysts have found a few stories worth reading. In "Is TiVo the Next Bankrate?", Rick Munarriz recently mused about TiVo's ability to transform "green thumbs" into green cash -- evolving into a business model akin to those that have served The Knot (Nasdaq: KNOT  ) , Google (Nasdaq: GOOG  ) , and Bankrate (Nasdaq: RATE  ) so well. Meanwhile, Anders Bylund argues in "TiVo Steals Nielsen's Business" that TiVo could make even more money as it upsets the television ratings kingpin's business model.

What management does:
As Rick pointed out when writing up last quarter's earnings, TiVo's continued loss of DirecTV (NYSE: DTV  ) -derived customers isn't entirely a bad thing. TiVo earns more from subscribers it lands on its own, and the firm's continued gross margin improvement is reflecting that dynamic. High operating costs, however, have eaten up the improvement and more, with the result that operating and net margins continue to be in the red.

Margins	4/06	7/06	10/06	1/07	4/07	7/07
Gross	35.2%	33.9%	33.1%	33.3%	37.6%	38.2%
Operating	(26.0%)	(24.8%)	(22.1%)	(14.1%)	(9.6%)	(10.5%)
Net	(22.8%)	(23.2%)	(20.4%)	(18.5%)	(13.8%)	(17.9%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
One other dynamic deserves your attention on Wednesday: growth in inventories as compared to sales growth. The first half of this fiscal year saw TiVo's inventories rise about four times faster than sales relative to the sales TiVo booked in the fiscal first half of 2007.

At first glance, this seems a troubling trend. But the good news is that, since the beginning of the first half of 2007, inventories have fallen with each passing quarter. As a result of this conversion of inventories into cash, TiVo burned less cash last quarter than in any fiscal Q2 since 2005. Will we see this trend continue in Wednesday's report? I'm hopeful, but not optimistic. The temptation to grow inventories in anticipation of Christmas sales may be too strong to resist. Let's just hope we see sales rise in something approaching proportion to any renewed growth in inventories.

Hey, did you see the Foolish duel on TiVo earlier this year? No worries, we TiVo'ed it for you. Replay it here: "Dueling Fools: TiVo."