It's no fun being the grump. The party pooper. The gray, silver-lining-less cloud threatening a fine summer day's picnic.
Yet it's a bear's duty to tell the truth, even about popular companies. It's a thankless job, but one that must be done -- and never more so than today. Today, we discuss the investability of the company that freed us from watching mind-numbingly banal commercials, that allowed us to "pause live TV" to answer a telemarketer's phone call. The maker of a device that lets us view programs when we want to, not when the networks tell us we should.
Yet today I've come not to praise TiVo
Negatives and positives
Why? Let's begin by counting TiVo's profits. Now let's stop, because it doesn't have any. TiVo's business hasn't earned a dime in the seven years it's been public. On the contrary, the company has racked up nearly $850 million in losses.
What's TiVo's P/E? Negative. Profit margin? Negative. Return on equity, assets, and invested capital? Negative, negative, and negative.
Looking for something positive about TiVo? Well, there's the stock dilution. Over the past five years, shares outstanding have increased by 122%, or about 14% per annum. Hey, if you can't make a profit from your products, you've got to get money from somewhere. And where better than from gullible investors?
But what about the subscribers?
Now, Tim may argue that TiVo's subscriber growth is another positive. Last quarter, the company's subscriber base increased by 74%. Four million households now subscribe to TiVo's service.
That sounds good, until you realize that companies like Sirius
The picture gets bleaker when you consider that Sirius and XM are the two dominant players in satellite radio. In contrast, TiVo has become an also-ran in the business it pioneered.
If you want to subscribe to satellite radio in the U.S., you must choose between Sirius and XM. If you want a digital video recorder, however, your choices are legion. Your cable provider probably offers one manufactured by Scientific-Atlanta -- soon to be part of Cisco
The writing's on the dish
When that happens, TiVo's dependence upon DirecTV as a source of customers will become a liability. Right now, DirecTV customers comprise more than two-thirds of TiVo's subscribers. Once DirecTV and TiVo switch from partners to competitors, we'll likely see a steady stream of DirecTiVo subscribers switching to NDS-brand DVRs and services. It won't happen all at once, since DirecTV will probably continue to support TiVo machines, but it will happen.
To combat this erosion of its established customer base, TiVo will have to ramp up its marketing in order to find replacement customers elsewhere. TiVo sees this problem, too, and has been making a concerted effort to find customers on its own -- but it's failing.
Last quarter, the company drastically discounted the sales price on its boxes, hoping to make up the hardware losses with service profits later on. Result: Out of 434,000 net new TiVo subscribers in the quarter, 379,000 came courtesy of DirecTV. The 55,000 net new subscriptions that TiVo sold on its own represented a 47% decline versus the year-ago period.
To sum up, TiVo isn't profitable now, when it has DirecTV carrying its water. In about a year, its biggest ally will become a competitor, cutting off the flow of new TiVo customers and stealing away existing ones.
I can sum up TiVo's future in three words: Fade to black.
Fool contributor Rich Smith does not own shares of, nor his he short, any company named above. If he did (or was), The Motley Fool would require him to tell you so. We're sticklers about things like that.