TiVo Looks Up At DVR IP Revenues

In a major uplift to the fortunes of TiVo (NASDAQ:TIVO), the pioneer in digital video recorders (DVRs) with annual revenue of $249.67 million, a U.S. district court in East Texas granted them an award of $103 million against Echostar, Dish Network’s sister company. This award goes a long way in helping TiVo, which recently reported a loss in its recently reported first quarter. Let us take a closer look.

On May 27, TiVo reported a net loss of $4.1 million or $0.04 per share, compared with net income of $3.62 million or $0.04 per share last year. It had expected a loss of $6-8 million last quarter. Q1 revenue was down 9.7% to $54.9 million, beating analyst estimate of $53.8 million. Service and technology revenue was down 12% to $48.5 million while hardware revenue increased 7% to $6.38 million. It ended the quarter with $215 million in cash and no debt.

At the end of the quarter, TiVo-owned subscriptions were 1.6 million and cumulative total subscriptions declined 16% to 3.2 million. TiVo-owned subscription gross additions declined 23% from 48,000 last year to 37,000, a stable performance compared to last quarter when gross additions declined by 46%. The deals with Blockbuster and Amazon apart from Netflix are probably the stabilizing factor. With these deals in place, TiVo users can now access the video libraries of these companies. However, subscription acquisition cost (SAC) was $139 flat versus last year but up from $114 last quarter and monthly churn rate was 1.4 %, compared to 1.3% last quarter. Q4 analysis is available here.

For the second quarter of fiscal 2010, TiVo expects service and technology revenue in the range of $47 to $49 million and net loss in the range of $6 to $8 million. However, this does not take into account the recent court ruling awarding it $103 million.

This is the second time that TiVo has been awarded a grant against Echostar. The last time in 2006, it was awarded a grant of $105 million. The court has found that Echostar has infringed on TiVo’s 11-year old DVR patent. Dish Network would now have to pay royalty for providing the DVR service. TiVo already has licensing deals with Comcast and DirecTV. The DVR patent expires in 2018 and TiVo in the meanwhile could also claim royalty from other companies that provide DVRs, including Time Warner Cable (TWC), Cablevision (CVC), and even Motorola (MOT) and Cisco (CSCO) that make set top boxes with integrated DVR functions. Cisco had acquired Scientific Atlanta, a provider of set-top boxes in 2006 and now TiVo could also become a possible acquisition target.

It is currently trading around $11 with a market cap of about $1 billion. It hit a 52-week high of $11.23 on June 9 after the court ruling on June 3.