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How’s TiVo’s Turnaround?

Posted on Thursday, Mar 13th 2008

It has been almost two years since I last wrote about TiVO when I said that it should get out of the retail hardware business model. Its focus has now shifted to selling set-top software to multichannel operators.

Founded in 1997, TiVo (Nasdaq: TIVO) and was the pioneer of the digital video recorder (DVR) which became popular for the simple reason that they are easy to use. DVR penetration is currently around 20% and is expected to grow to 35% by 2009. Capitalizing on this trend, CBS, NBC, and Omnicom Media Group have formed unique advertising deals with TiVo. TiVo is surely making good use of its ability to report what people are watching.

It is also investing in defending its patented technologies. In January, it won $94 million in a patent dispute with EchoStar or Dish Network. This victory puts TiVo in a strong position in its negotiations with other cable and satellite TV operators and its share of the digital video recorder market is expected to grow from roughly 40% to 65% by the end of 2010.
TiVo already has deals with Comcast and Cox to provide set-top boxes with DVR technology.

With its focus shifting away from selling DVR hardware, its advertising and marketing expenses have come down substantially driving its losses down. In its earnings release for Q4 and fiscal year 2008 last week, it reported Q4 net loss of $6.4 million compared to a much larger $19.5 million in Q4 last year. Losses also reduced because of better than expected sales of its older models. Full year net loss was $31.5 million, down 34% compared to $47.8 million last year.

Q4 service and technology revenues were $58.1 million, compared with $57.0 million in Q4 last year. Full year service and technology revenues were $230.9 million, compared with $217.3 million last year.

For the first quarter of fiscal 2009, TiVo expects service and technology revenues in the range of $53 – $55 million and net loss in the range of $1.0 to $3.0 million. It is currently trading around $8.5 and its market cap is around $850 million. It hit a 52-week high of $9.43 on February 28.

tivo chart

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Just a minor correction to the story. Echostar has actually reserved $128 million to pay the verdict. However, the end of the story has not yet been written. Tivo had a couple hardware patents reversed on the appeal and remanded back to the trial court due to a faulty instruction from the trial judge. In addition, the USPTO panned a Tivo hardware patent. If this issue is upheld on remand then Echostar’s hardware will have been found to infringe and they will be in the unenviable position of having to settle or disconnect all their DVR’s.

On the issue of damages, E* says its no longer infringing. However, Tivo disputes this. If E* is found to still be infringing, expect the judge to throw the book at them. No matter how you cut, time is running out for E*. At the very least they will have to pay Tivo $128mm or $1.28 per share. At worst, it could he hundreds or millions more and the requirement that they license Tivo’s patents.

Things are looking up for Tivo.

KHL Friday, March 14, 2008 at 8:42 AM PT