TiVo Yanks Subscriber Guidance

The company pledges to spend more to attract new users as cable partners look to other technologies.
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TiVo

(TIVO) - Get Report

dropped 6% late Wednesday after the video recording pioneer posted soft second-quarter subscriber gains and said it would stop providing user-growth guidance.

The Alviso, Calif., company swung to a small quarterly profit, marking its first-ever period in the black. But investors fled after TiVo pledged to spend more to attract more users in future quarters.

For the second quarter ended July 31, TiVo made $240,000, or less than a penny a share, reversing the year-ago loss of $10.8 million, or 13 cents a share. Service revenue rose to $40.2 million from $24.3 million a year ago. Analysts surveyed by Thomson First Call had forecast a 4-cent loss on revenue of $40.7 million.

TiVo said its owned net user adds fell to 40,000 from 63,000 a year ago, while total subscriptions rose 254,000 to 3.6 million. Investors have been keeping a close eye on the TiVo-owned figure because TiVo is facing increasing competition and the possible loss of big customers such as

DirecTV

(DTV)

in coming months.

The stock had traded up quickly just before market close, rising 19 cents late Wednesday to end at $6.04. But in after-hours action the stock slid 35 cents to $5.77.

"While it is encouraging that we hit break-even this quarter, it is clear TiVo faces a number of significant challenges," CEO Tom Rogers said in a statement late Wednesday. "In directly facing those challenges there is considerable long-term potential that can be realized. To that end, we have begun to aggressively attack a number of critical issues in sales, marketing and distribution.

"Driving growth in the number of subscriptions at TiVo is the biggest critical challenge we face," added Rogers, the former

Primedia

(PRM)

chief who came aboard in June to lead a turnaround effort. "Given the increasingly competitive environment, approaching this area more aggressively than we have in the past requires additional investment in subscription acquisition."

Indeed, TiVo continues to contend with mounting pressure from cable companies deploying their own digital video recorders.

News Corp.

(NWS) - Get Report

-owned DirecTV recently snubbed TiVo and is expected to begin touting its own products to customers shortly. DirecTV is expected to use a competing service from

NDS Group

(NNDS)

, a News Corp.-controlled company whose technology is already deployed by Rupert Murdoch's BSkyB.

The status of TiVo's relationship with cable giant

Comcast

(CMCSA) - Get Report

is also a source of some worry for investors looking forward.

For the third quarter, TiVo expects to lose $20 million to $25 million on revenue of around $42 million, which is mostly in line with Wall Street estimates.