Tough Times for TiVo?

Scrappy TiVo (Nasdaq: TIVO  ) reported third-quarter numbers last night, and while there were bright spots, there was plenty to foster unease. Judging by the stock's punishment today, many investors are likely thinking this is as good as it gets.

TiVo, a Motley Fool Stock Advisor stock, reported a net loss of $26.4 million, or $0.33 per share. While that loss did widen over last year's figure, it's important to note that TiVo had already said that the next couple of quarters were going to be tough, what with increased advertising and rebates, among other initiatives. Total sales dipped 11%, although service revenues increased 73%.

The marketing blitz might be called a success, judging by the fact that TiVo more than doubled the number of subscribers it reported last year at this time. The company also forecast 3 million subscribers by year's end. However, a great percentage of those new subscribers are funneling in through TiVo's relationship with DirecTV (NYSE: DTV  ) , as opposed to its stand-alone service -- an issue that many find troubling (click here for Foolish contributor Rich Smith's two cents).

We already know about the threats posed by DVR offerings from cable giants such as Comcast (Nasdaq: CMCSA  ) and Cox (NYSE: COX  ) . Furthermore, TiVo is in a race to capture analog cable subscribers -- cable companies pitch DVR service to their digital customers, who are still a small percentage of total users, but growing rapidly.

In its conference call, TiVo pointed to ways it plans to differentiate itself from "generic" DVRs. It counted DVD recorders, the soon-to-be-delivered TiVo2Go, and making TiVo boxes digital cable ready (eliminating the need for digital cable set-top boxes), among its upcoming initiatives.

Furthermore, TiVo has been busy shoring up its future by making deals with advertisers -- as well as performing some audience-monitoring services -- in order to enhance chances of catching the DVR-savvy users who fast forward through ads. There's also its deal with Netflix (Nasdaq: NFLX  ) to try to combine services to stream movies from PC to television.

Investors looking for reasons to be optimistic should note that TiVo boxes will be available at 4,000 retail hot spots during the holiday season, including Best Buy (NYSE: BBY  ) , Costco (Nasdaq: COST  ) , and Target (NYSE: TGT  ) .

Today may very well be a foolish (and that's with a little "f") day for investors to lose their cool, given TiVo's stock drop and the accompanying negativity. After all, TiVo's third quarter should have come as no surprise to any investor who has been paying attention. However, TiVo remains at a critical -- and, granted risky -- juncture. All eyes should be fixed on the crucial holiday season, as well as TiVo's ability to innovate and differentiate.

What do you think of today's stock dip? Are you worried about TiVo's future or its relationship with DirecTV? Will its continued pandering to advertisers sour its users? Talk to other interested investors on our TiVo discussion board.

Alyce Lomax does not own shares of any of the companies mentioned, but she is a loyal TiVo user.


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