TiVo Slides on Weak Revenue, Subscriber Losses

TiVo (TIVO) shares this morning are taking it on the chin after a disappointing financial report for the fiscal second quarter ended July.

There are several factors at work in today’s slide. For one thing, revenue came up short of expectations - and so did guidance for the fiscal third quarter. For another, the company took an unexpected $11.2 million inventory writedown for standard definition DVRs, a casualty of its shift to a focus on high-definition DVRs. The company also suffered a net loss of 19,00 “TiVo owned” subscribers, disappointing investors who had expected to see at least a modest increase in subs.

Bulls on the stock are looking to several events to buoy the stock in the weeks ahead. For one thing, the company seems to be getting some traction with its new $300 high-def stand-alone DVRs, which recently hit retail stores, and which triggered the need for that inventory writedown. For another, Comcast (CMCSA) in September is expected to start rolling out TiVo service to its customers in New England; Comcast is also now apparently working on engineering a version of the same service for systems that use set-top boxes produced by Cisco’s (CSCO) Scientific-Atlanta unit. (About three-quarter of Comcast customers use Motorola (MOT) set-top boxes, with SFA set-tops accounting for about a quarter.) Also coming: the latest round in the ongoing patent infringement litigation the company filed against EchoStar (DISH); TiVo won the original case, but EchoStar is appealing.

But will any of that get the stock rolling again? On that subject, there is some debate.

Citigroup’s Tony Wible this morning repeated his Buy rating and $10 price target on the stock. “We suggest that investors view the weak results in the context of TiVo’s overall market opportunity,” he wrote, noting that Comcast and Cox, both of which are rolling out a version of Comcast for their video customers, together have 30 million customers.

More cautious is Brian Coyne, an analyst with Friedman Billings Ramsey; he maintains a Market Perform rating and $6 target on the stock. Coyne writes that he has doubts about the impact of the new HD DVR and the Comcast arrangement. On the new DVR, he questions whether it can reduce churn or “consistently deliver” new subscribers. On the Comcast relationship, Coyne says he struggle to see how it can deliver “meaningful upside…in a realistic time frame.”

Today, the TiVo bears are in charge. The stock is down 54 cents, or nearly 9%, at $5.66.

Comments

[Tom B]

I don't like TiVo long term. The future of TV lies with TCP/IP. Products like AppleTv are ready for this; TiVo is not.