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TiVo Records a Messy Quarter

Shareholders' only hope lies in the company being acquired.

This column was originally published on Street Insight on Nov. 30 at 9:31 a.m. ET. It's being republished as a bonus for and readers. For more information about subscribing to Street Insight, please click here.


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is a real mess, and the only hope for its shareholders lies in the company being acquired.

TiVo still faces a host of headwinds. Its big push for holiday sales -- by offering free or discounted tuner boxes -- is not likely to drum up the additional revenue stream that Wall Street was expecting. Delays in certain advertising deals are not a positive development, either.



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litigation still hangs over its head. In October, a U.S. Court of Appeals judge issued a stay of a lower court injunction requiring EchoStar to cut off DVR service to several million installed set-top boxes. On Nov. 27, the District Court judge in Texas denied all pretrial motions filed by EchoStar, clearing the way for further appeals of the injunction.

You might say that TiVo's distribution agreement with

Cablevision Mexico

will be accretive in the future. (Cablevision Mexico is owned by

Grupo Televisa

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, Mexico's largest cable operator in Mexico City.) However, given TiVo's track record, I remain apprehensive. I just don't foresee this company generating a profit anytime soon.

Latest Results

For the third quarter reported Wednesday, TiVo reported a net loss of $11.1 million, or 12 cents per share, and total (service plus technology) revenue of $52.6 million, up 22% from the year-earlier period. TiVo-owned gross subscriptions grew 10% year over year to 101,000. This marks the first time in six quarters that this metric was positive on a year-over-year basis.

Overall Tivo-owned subscriptions rose 24% year over year to 1.6 million. Cumulative total subscriptions rose 11% year over year and rose slightly on a sequential basis to 4.4 million. Net subscription additions were hurt by a net decline in



TiVo box deployment. Churn was 1%, and 138,000 lifetime subscriptions have reached the end of the 48-month period that TiVo uses for revenue recognition.

Online sales as a percentage of total sales increased from 33% last quarter to 43% this quarter. Technology sales rose from about $900,000 to $3.6 million on the back of development work in conjunction with


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, but fell short of guidance as certain advertising deals did not close during the quarter. Subscriber acquisition costs were $287, down 7% from the year-ago quarter.

The company ended the quarter with $107 million in cash and equivalents, which includes $65 million from a common stock offering. Management expects to see an improvement in its cash position subsequent to the holidays.

Looking Ahead

TiVo initiated a new pricing plan, with no upfront charge for a single tuner and a reduced fee for dual tuner boxes. Subscription plans range from $19.95 per month for one-year plans to $14.95 per month for two-year plans and $12.95 per month for three-year plans. The company also created uniform subscription pricing across online and retail channels.

The lifetime subscription plan is no longer being offered. (By the way, my single-tuner TiVo, which I paid for six years ago, is still operating under a lifetime subscription plan.) The company will be evaluating the no-upfront-cash scheme for tuners after the holiday season.

For its fourth quarter, TiVo is expecting total revenue of $54 million to $55 million, which is significantly below the current consensus of $61.2 million. It is also forecasting a net loss of $33 million to $38 million, which I calculate to be a loss of 36 cents to 41 cents per share, much worse than current estimates for a 24-cent loss.

At the time of publication, Rothbort had no positions in any of the stocks mentioned in this column, although positions can change at any time. Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities. Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University. For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at Scott appreciates your feedback; click here to send him an email.