TiVo Set To Benefit From Growing IPTV Market

According to iSuppli, the IPTV market grew more than 50% in 2009, and the number of IPTV subscribers is expected to grow an additional 56% to 52 million by 2010 and double to 115.6 million by 2013. Amazon and Netflix should benefit from this trend and from the increasing momentum in the video-on-demand space. TiVo (NASDAQ:TIVO), the pioneer in digital video recorders (DVRs) with annual revenue of $249.67 million, should also benefit as a result of its partnerships with these two companies. Let’s take a closer look at TiVo.

On August 26, TiVo reported a second quarter net loss of ($2.9) million or ($0.03) per share, compared to net income of $2.9 million or $0.03 per share last year. Analysts estimated loss of $0.05 per share. Q2 revenue declined 12% to $57.4 million, beating analyst estimates of $53.7 million. Service and technology revenue was $48.8 million, compared with $53.5 million last year and $48.5 million in the previous quarter. Service revenue was $41.5 million and technology revenue was $7.3 million. The company generated $5 million of cash from operations and ended the quarter with $238 million in cash. Q1 analysis is available here.

TiVo-owned subscription gross additions declined 14% to 31,000 from 36,000 last year. This is a marked improvement over Q4, when gross additions declined 46%. At the end of the quarter, TiVo-owned subscriptions were 1.6 million and cumulative total subscriptions were 3 million. TiVo-owned average revenue per subscription fell year-over-year to $7.73. TiVo-owned total acquisition costs were $5.3 million and subscription acquisition cost (SAC) was $172, roughly flat with last year but up significantly from $139 last quarter. Churn was up slightly from last quarter to 1.5%.

Apart from its partnerships with Amazon and Netflix, TiVo has teamed with Comcast and DirecTV, which should help the company curb subscriber losses. In June, a US district court in East Texas awarded TiVo $103 million in damages and found Echostar, Dish Network’s sister company, to be in contempt. Echostar is appealing the contempt order. The court found that Echostar had infringed on TiVo’s 11-year old DVR patent, which expires in 2018. This is the second time that TiVo has been awarded a grant against Echostar. The last time, in 2006, TiVo received $105 million. TiVo also filed a lawsuit against AT&T and Verizon for infringing on three of its patents, including the Time Warp patent.

During the second quarter, TiVo announced that RCN, a cable overbuilder that passes through 1.6 million homes in Boston, Chicago, New York, Philadelphia and Washington, D.C., has chosen the TiVo HD DVR product as its primary DVR offering. It also entered into an alliance with Best Buy for greater distribution of TiVo products.

For the third quarter, TiVo expects revenue of $46 million to $48 million, versus Street estimates of $48.3 million. Net loss is expected to be $8 million to $10 million and adjusted EBITDA ranging from breakeven to a loss of $2 million. The stock is currently trading around $9.5 with market cap of about $1 billion. It hit a 52-week high of $11.62 on June 11.