Thumbs Up for TiVo

TiVo had a solid double feature yesterday. In the morning it landed some important patents. In the afternoon it announced better-than-expected quarterly results. As personal television begins to dig deeper into the mainstream couch-potato culture, TiVo remains the leader with 200,000 subscribers and growing.

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By Rick Aristotle Munarriz (TMF Edible)
May 25, 2001

Yesterday was so good, TiVo (Nasdaq: TIVO) shareholders will want to pause, rewind, and do it all over again. The leading maker of digital television recorders announced that it had secured some meaty patents, then topped off the day by reporting strong revenue growth after the market closed.

TiVo shares shot up 72% on the day to close at $8.50, then inched a few ticks higher in after-hours trading. Good show, but still a far cry from the $78.75 high the stock struck early last year.

Investors have good reason to be excited over the company's "Multimedia Timewarping" patents, for which it applied nearly three years ago. Covering methods for recording during playback, streaming, and the ability to pause and scan through live television, it puts TiVo in a position to reap the harvest of its pioneering efforts if other companies begin paying TiVo license revenue.

ReplayTV, set to be acquired by SONICblue (Nasdaq: SBLU) next month, struck a licensing deal with Motorola (NYSE: MOT) earlier this month and is in test trials with AT&T (NYSE: T) Broadband, AOL Time Warner's (NYSE: AOL) Time Warner Cable, and Comcast (Nasdaq: CMCSA). While it's not clear if ReplayTV -- or Microsoft's (Nasdaq: MSFT) Ultimate TV -- infringe on TiVo's freshly granted patents, having them in place gives it a clear advantage to negotiate licensing deals rather than haggle over the gray areas in between.

TiVo hasn't been completely asleep at the partnership wheel, though one must wonder why Time Warner Cable was trying ReplayTV out when AOL Time Warner is an investor in TiVo. Beyond two separate cash infusions, AOL tapped TiVo for its AOLTV offering last summer.

So while TiVo has a lot of ground to cover in cashing in on the personal television revolution, it is doing a bang-up job on its own. Last month the company said it was able to hit its target for subscriber growth in the April quarter just two months into the period.

Having just topped the 200,000 subscriber mark is a pleasant, yet not unexpected, milestone. TiVo also reported a sixfold increase in fiscal Q1 (ended April 30) revenues while losses doubled to $1.20 a share -- three cents better than analysts projected. While a top line of $3.2 million might seem paltry, it's more significant than just 48% in sequential revenue growth. As the TiVo population continues to gain in number, the subscriber base becomes an ever-growing, consistent contributor to TiVo's financials.

While TiVo literature proclaiming that 96% of its surveyed users would recommend the service to their friends might be met with cynicism, the subscriber numbers seem to point to a loyal audience more than willing to grow the base through favorable word-of-mouth. That's always been a time-tested way to grow a company.

So let investors do the timewarp again: TiVo might even hold the patent.

Rick Aristotle Munarriz has owned a TiVo for a few months now. Now if only he had the time to watch TV! Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

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