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Oh, No, It's TiVo

By Rick Munarriz - Updated Nov 15, 2016 at 5:13PM

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It's time for TiVo's quarterly heartbreak again.

The TiVo (NASDAQ:TIVO) story sounds so appealing, save for four days a year. Those days are when TiVo steps up to the podium to let investors know how much money it's losing. One of those days for the DVR (digital video recorder) pioneer was yesterday, when the company posted its fiscal third-quarter results.

Net revenues for the period climbed 32% higher to $65.7 million. The company's quarterly loss narrowed -- from $0.17 a share to $0.12 a share -- and that was an improvement over the $0.14 per-share loss that the market was expecting.

However, the initial reaction was for after-hours trading to hit the red thumbs-down button on the report. Service revenue came in a bit light. The company also noted that it will be ramping up its marketing efforts during the holiday quarter, and that move will produce a wider fourth-quarter deficit.

The company will be expanding its costly hardware rebates at the rebate level, testing the "free after rebate" model for its entry-level unit that has worked well on TiVo's online store. Unfortunately, this has been burdensome for TiVo in the past, especially since it's selling its boxes at negative gross margins even before we tackle the rebate.

It's easy to see why TiVo wants to grow its TiVo-owned subscribers. Despite migrating users to its own boxes, DirecTV (NYSE:DTV) still accounts for 63% of the 4.4 million total TiVo subscribers. Yes, the DirecTV crowd was easier to acquire, but it provides TiVo with an average of just $0.89 a month (unlike the average monthly revenue per user of $8.65 that the company is getting for its own subscribers).

Over the past year, TiVo's subscriber acquisition cost has risen to $226 per user. However, the most popular pre-paid plan is a three-year offering that's winning TiVo back $299.

It's easy to wax optimistic despite the malaise. Consumers are paying up for costlier dual tuner systems, and the new Series 3 high-definition boxes scream out high-end appeal that should facilitate monthly fee hikes in the future. However, just 55% of the company's subscribers are delivering recurring monthly revenue for TiVo, even with the elimination of its lifetime subscriptions that produced generous -- yet naturally short-lived -- one-time upfront payments.

Those lifetime subs also used to pay $299, and that would weigh down average revenue per user to the tune of $6.23 a month, as the fee was amortized over the first four years (and then zip after that).

Recent announcements have been encouraging:

  • TiVo has partnered with broadcasting giants like CBS (NYSE:CBS) to provide broadband-delivered content for TiVo boxes.
  • Despite a recent judgment against it, TiVo may still stand to generate a hefty windfall from DISH Network parent EchoStar (NASDAQ:DISH).
  • This week, the company also expanded its options for advertisers to reach TiVo users.

However, TiVo never seems to have a shortage of mouthwatering press releases. As a shareholder and subscriber, I'm hungry for more at this point. Sooner or later, a verb like TiVo has to deliver a profit.

Sure, it won't happen in the current quarter or even the following year, but please, TiVo, do something to stop making me dread these quarterly reports.

TiVo is a Motley Fool Stock Advisor newsletter recommendation.

Longtime Fool contributor Rick Munarriz does love his TiVo, and he does own shares in TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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