So you find yourself on a spinning carnival ride. You're feeling dizzy. Your quivering stomach reminds you that you're feeling queasy, too. But then the carnie manning the ride belts out, "Do you want to go faster?" and you find yourself hollering for more. You're risking your lunch for the sake of speed, but you do it anyway, sucker.
But as the positive g-forces push against you, take a look around, and you'll find TiVo (Nasdaq: TIVO) riding alongside. Yes, the company that has heated up your TV-viewing experience by allowing you to freeze live TV (as well as much, much more) is nodding its head. It wants to go faster, even if it looks like it's going to hurl.
The company behind the digital video recording devices has tacked on nearly a million new subscribers over the past year, and it's looking to tack on a million more during the last half of 2004. But there is a price to this breakneck speed, and it is revealing itself in wider losses and lower price points to draw in new subscribers.
Last night, the company that earned a recommendation last year in our Motley Fool Stock Advisor newsletter posted a wider loss of $0.13 a share for its fiscal second quarter as revenues climbed by 49% to hit $39.8 million.
Its partnership with DirecTV (NYSE: DTV) continues to be the major driver to the company's expanding reach, accounting for more than half of the 3 million subscribers that TiVo expects to have under its thumb button by year's end.
Yet the company is ready to take some near-term pain to achieve its lofty goals of couch potato domination. It has rolled out a bargain-priced recorder with a $99 price point that should play well in the company's growing frontline of retailers that includes Best Buy (NYSE: BBY), Costco (Nasdaq: COST), and Target (NYSE: TGT).
Will moving more machines make TiVo a better business? The company actually loses money on them as the recorders sport a negative gross margin. The real gravy lies in the subscriber revenue: Folks sign up for monthly plans to keep TiVo updated with the TV programming.
TiVo can stomach the spins. While operating losses are going to widen significantly in the current quarter, the company's cash-rich balance sheet can handle the princely acquisition costs. The company will be fine as long as the more aggressive TiVo and its bargain pricing strategy are indications of massive assimilation rather than a desperate move to cater to a niche market that may be tapped out.
So feel free to hold your nose over the next few quarterly bottom lines. They are bound to be putrid. Yet if the growth is sincere, keep an eye on TiVo's eyes; it may be ready to ditch the carnival for bigger thrills.
Are you one of the 1.9 million TiVo subscribers? Do you swear by the service, or could you improve it? What are the alternatives? All this and more in the TiVo discussion board.
Longtime Fool contributor Rick
Munarriz has been happy with his TiVo for a couple of years. He does not own shares in any or the companies in this story.
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