Samuel Biller

Special situations, value, long only, media
Samuel Biller
Special situations, value, long only, media
Contributor since: 2012
A couple of thousand rich people to buy a ridiculously high-end DVR? I wouldn't be surprised.
Regarding the TiVo OTAs $15/mo subscription fee, there has been a lot of buzz and I think the $15 price might generate some healthy sales. Is it for me? Absolutely not. Is it for the generation of consumer who is used to buying a subsidized phone for $49 and signing a two-year contract, perhaps. Once the TiVo OTA's inventory builds at Best Buy, I expect TiVo will sell somewhere between 5,000 and 10,000 of this SKU during Q4. I also expect Amazon to sell it.
A comparison of the TiVo OTA to the Aereo is interesting. Both boxes received linear broadcast programming. The TiVo OTA delivers a higher quality, the highest in-fact, HD signal to one or multiple TVs in the home vs the Aereo which delivered a compressed and encoded broadcast TV signal to one TV. Is that worth $7.00 per month more? Perhaps when you couple that with TiVo's content aggregation services the comparison is even better. The interesting thing about the Roamio OTA is the ROI period for TiVo. A Roamio OTA sub will probably become cash flow positive for the company in 12 to 15 months.
I agree that comparing Netflix to TiVo is incorrect. I also agree that large MSOs can do their own content aggregation with the help of some partners like TiVo Digitalsmiths. Comcast's X1 initiative contradicts your assertion that MSOs aren't in a rush to adopt a TVE strategy.
You miss the key fact that Premiere and Roamio are boxes designed for retail and cable operators. That is why the TiVo strategy is working. TiVo has a common modern code base across all operators. In fact, the quality and success of Roamio is one of the key reasons that adoption by the majority of mid-tier MSOs in the U.S. is accelerating. TiVo's retail strategy is growth at a reasonable price. They won't bet the farm on retail because the retail market doesn't warrant the risk. There is the friction of CableCARD and generic MSO offerings to overcome. Once CableCARD is replaced, they will need to revisit whether further investment is required.
Hi Matthew,
Excellent article. One quick question regarding Rovi's cash flow and EPS. A quick look at the 10Q for Mar 31, 2013 shows a Net Loss of ($25.7mn). Will these losses continue or are they expecting to turn GAAP EPS profitable in the near future?
As you point out in your EV/EBITDA metric the stock does not appear to be cheap at these levels.
Thanks Thomas. Check out this perspective. I think its brilliant... makes a lot of sense.
TiVo has a lot of options with over $1 billion in cash on the books. We know they will get more aggressive with the buyback but what are they planning on doing with the other $800 million? I suspect that the likelihood of an M&A has increased significantly at this point. I'm evaluating a number of scenarios right now. The company is operationally more healthy today and adding at these levels is a smart play for an investor.
Thanks ximoosea1.
I really like the risk/reward at this point but downside risk exists if this thing goes to trial next week. I see any sell-off as a buying opportunity going into a likely jury verdict around June 19th.
The near term heat is almost exclusively around the near-term litigation with Googorola. Acquisition becomes more likely once the current litigation and the Cisco litigation is resolved next year.
A quick Google search for MSO quickly reveals the answer -- first entry in fact. I don't think anyone should invest in TiVo without a basic understanding of the cable business where MSO is one of the most basic terms.
PS) Multiple-System Operator (i.e., a cable operator).
Excellent comment. I think there will be more consolidation in the industry (e.g., LG acquiring Virgin Media). I wouldn't be surprised to see TWC take-out CHTR nullifying the short thesis.
Charter releases Q4 earnings tomorrow (2/22) morning before the market opens. I will reserve judgement until I see their latest report and listen to the conference call. Interesting article.
Citadel raises its stake (13G) in TiVo (TIVO -0.2%) to 5.2%, adding over 5M shares to its previously ... $TIVO
Hi Vince,
Thanks for the comments on the piece.
<<<I'm interested as to how/why you're forecasting 89% adoption at Virgin>>>
I happened to notice the 89% adoption rate at Virgin and think that may be a bit aggressive. I've lowered it a bit in the out years going forward but it doesn't materially impact my bull case. As you probably know, Virgin recently launched their TV Anywhere initiative which allows a Virgin subscriber to receive some level of service on many different end-points including a PC/Mac and iOS device. They also enabled Multi-Room Streaming (MRS) for the first time on TiVo. At this point its unclear how Virgin will report multi-device households (HHs) to TiVo. This will probably contribute either a higher ARPU or a higher number of Virgin subscribers on the TiVo books. I am projecting that Virgin's penetration rate which is now in the 200,000+ per quarter to the 150,000+ per quarter next year followed by 100,000+ per quarter in FY15 and FY16.
<<<My argument has been that TiVo's core business needs its subscriber base to grow by 3x or 4x to even reach profitability>>>
I would contend that the number is much smaller than 3x. TiVo has already guided to being cash flow positive next year including litigation expense. I expect that TiVo will be GAAP EPS positive sooner than most analysts are forecasting (current FY15). This is due to a clear issue I've discovered with the way the analysts are projecting ARPU going forward once Virgin Media revenue starts flowing to the Service Revenue line sometime next year. I will highlight this discrepancy in a future piece on Seeking Alpha.
<<<To me, if you take out the $2/share value on the core business (I'd put the PW value around $0, personally) and also account for the cash burn over the next 24-48 months, you're getting to a fair value awfully close to the current price around $12.>>>
I agree with your scenario that if the core business is worth zero present value than we are looking strictly at a litigation play. My contention is the core business is worth $2.00 today with significant upside based on TiVo's current deals on the books with potential upside on new deals and an improvement with their Charter deal and/or retail trends. I still see an asymetric risk/reward with downside in the 10% range at current prices (~$12) and upside of at least 50% based on the likely outcome of the Moto litigation and continued improvements in the core business.
I'm looking forward to your next piece on the company. Thanks again for the comment.
It's unclear the impact this would have on the billion+ patent infringement suit that TiVo has against Moto and TWC. I'm guessing Google would indemnify and finance any acquirer.
"Wow Samuel, you must use the same research sites that the author here does."
LOL. Have you read my articles on TiVo?
" Tivo isn't a cable operator."
Their not but they are attached at the hip with quite a few cable operators in the US and abroad. I haven't updated the percentage recently but a large percentage of US cable operators now have either a license or advanced television deal with TiVo. That number will likely grow once TWC capitulates.
"But what happens when Netflix or Amazon win the rights to the Superbowl, and stream the game live from the complimentary devices that run their programs?"
Its interesting that you bring up a sporting event like the Superbowl. Live sports is one of the key reasons that its really difficult for a sports fan to "cut-the-cord". I don't see a shift to a streaming-only situation for sports any time in the next 3-5 years. BTW, I am a subscriber to Netflix and Hulu+ so I'm fully aware of their capabilities.
Sure... and at the same time the cable operators keep making piles of cash and some even are adding subscribers. Verizon FiOS announced Q3 2012 earnings today adding 119,000 Video Subscribers. Are cord cutters and cord nevers a reality? Sure. Are they disrupting the cable operators business models? Nope.
JPM is just one of many analysts that have this thesis about TiVo. I would argue that they are signing deals pretty aggressively that positions them as a leader in the MSO (cable operator) space both domestically and internationally. OTT video streaming hasn't displaced the cable operators when it comes to the way video is consumed around the world. In fact, DVR usage continues to increase QoQ.
Barclays also published a note today related to TiVo's filing in the Moto case yesterday.
Hi Neil,
I thought I had responded to your comment but it didn't post. Sorry for the delay.
MSO is a Multiple System Operator. Examples are Comcast, Time Warner Cable, RCN, Suddenlink, etc. This is the term TiVo uses to track all of its direct relationships with cable and satellite companies. In general, the MSO pays TiVo a significantly lower fee than a retail TiVo subscribers since TiVo isn't responsible for marketing and support.
OTT refers to Over The Top services like Netflix, Hulu+, YouTube, Amazon, Vudu, etc. TiVo is the only box that I'm aware of that fuses linear television delivered from a cable operator with Video On Demand from the cable operator in some markets and OTT services like Netflix and Hulu+. If there is one deficiency with TiVo I would say its the performance of its OTT interface compared to boxes like Roku and Apple TV. Roku also has a lot more content available OTT than a TiVo.
"In terms of the licensing fees, I didn't miss anything. I included the $6MM from Verizon. You're also double-counting by arguing that the company will get $1.5B from the settlements AND become EPS positive from licensing payments. "
I see that now. Thanks.
"I'm not sure where your profitability optimism comes from...TiVo is hopeful just to get to breakeven EBITDA excluding litigation spend. A positive GAAP FY14 would require another settlement, most likely. TRA is not going to be enough, by even the company's own admission."
The comments about breakeven EBITDA ex litigation were prior to the Verizon settlement. If you look at TiVo's published trend sheet from the last quarter you can actually see how close they already are to breakeven EBITDA ex litigation. In the last quarter, they were $3mn negative. You can see how that trend is improving QoQ. I think its very reasonable to assume that without the VZ settlement TiVo would have been at breakeven adjusted EBITDA excluding litigation in Q4 (Jan 2013). If you add in the VZ license fee of $6mn for Q4 that offsets the projected legal fees for Q4 of approximately $6mn so that is how I get to a breakeven Q4 from an adjusted EBITDA perspective. To become GAAP EPS profitable TiVo needs to add an additional $8mn in revenue or identify a way to cut expenses by $8mn. I expect them to do a little of both. I think R&D expenses will be significantly lower in FY14 than in FY13 since a large portion of their foundational investment in the Series 4 platform is behind them. They have alluded to this with the comments regarding reduced R&D spend in the back half of the year and there has been some news about recent layoffs at TiVo reflecting lower R&D expenditures going forward. I expect MSO growth to accelerate somewhat in FY14 with Charter finally coming online, ONO ramping up, and Com hem launching in Q2-14. There will also be a surge in subscribers at Suddenlink. Coupling all of these pieces together (i.e., connecting the dots), I think the bullish case can be made for GAAP EPS profitability in FY14. I will lay this out in much more detail in my next article.
Finally, as adding substantiation to my claim of breakeven EBITDA for Q4 I will point you to the B. Riley headline today -- "B. Riley: TIVO (Buy, $17.00 PT); Verizon Settlement Proceeds Exceed our Estimate; Accelerates Move to Sustainable Positive EBITDA to Q4 of the Current Fiscal Year"
Hi Neil,
My apologies for not spelling out the acronyms. MSO is an acronym for Multiple System Operator. It refers to cable operators like Comcast, Charter, Virgin Media, etc. OTT is an acronym which means Over The Top Services. Over the Top (OTT) refers to video, television and other services provided over the internet rather than via a service provider’s own dedicated, managed QAM or IPTV network.
I'm glad to see you back writing about TiVo. I thought I was the only author left with any interest. I have a few comments and clarifications on your article.
Regarding your statement, "assuming a 50% chance of the company winning all three suits, TiVo's operating business is essentially available for free." I would assert that with Dish, AT&T, and Verizion settlements in the past that estimating the chances of success with Google, TWC, and Cisco at 50% is too low. Keep in mind that Motorola (Goog) is the largest supplier of set top boxes to Verizon. TWC is likely in an almost identical situation to Verizon with almost zero defensive patent protection. They are forced to rely on their suppliers for assistance (e.g., Cisco). I would handicap the chance of a TWC settlement at >80%. I would argue that Cisco is the big unknown from an IP perspective due to their recent $5B acquisition of NDS. I'm not sure how much of the NDS' patent portfolio they could use in a defensive manner. I wouldn't be surprised to ultimately see both TiVo and Cisco dismiss their suits without prejudice in a similar manner to the Microsoft v TiVo dispute associated with AT&T. The other point that analysts haven't raised is the additional licensing deal of Bright House Networks that in general signs the exact technology/licensing deals as TWC. The bottom-line is I think its conservative to estimate the present value of future IP settlements at $1B after examining the current environment.
You've completely missed the point that every settlement has ongoing technology licensing revenue fees. The current settlement with Verizon adds quarterly revenue of $6,016,000. You also missed the point that the Verizon settlement has a $29.6mn potential Verizon credit for undisclosed cooperation initiatives which would likely be beneficial to both parties in the US. If we factor in the number of licensed subs associated with Dish, AT&T, and Verizon TiVo has well over 10mn licensed users in the US alone. TWC alone as 3x the number of subs as Verizon. Even if I discount the settlements to your very conservative $750mn number, TiVo would see most of that revenue reflected in quarterly revenue through 2018. This contribution alone to quarterly revenue would add approximately $20mn per quarter to revenue which would instantly put TiVo in an EPS positive position.
Regarding your comment, "There is a catch, however, as MSO subscriber growth does not occur in a vacuum. New subscribers require new hardware, which TiVo sells at a loss. Hardware revenues were down slightly in Q2, but up sharply during Q1 due to increased sales to MSO customers. Gross loss from hardware rose $1.5M in Q2, and over $4.7M in the first half."
If you look at my article my Aug 30th article -- -- or analyze the latest TiVo 10Q you'll see that TiVo does not subsidize MSO hardware. In fact TiVo made $1.3mn on MSO hardware in the latest quarter. Most of the larger deals for TiVo going forward (e.g., Virgin, ONO, Com Hem, Charter) don't even include a hardware component (i.e., they are software only). The bottom-line is that TiVo DOES NOT subsidize MSO hardware so your statement about the problems going forward for MSO growth are incorrect.
Finally, you haven't even recognized the fact that TiVo is in the initial stages of its deal with Comcast (hybrid-retail) and they have released the TiVo Stream to the market. The initial reviews of the TiVo Stream are extremely positive and the TiVo Mini IP-STP will be released in the next few months. There is already evidence that retail (TiVo-owned) churn and gross-adds are up with the few markets that Comcast has enabled for Xfinity On-Demand. This trend is likely to continue. I don't think its a stretch to see a potential turn-around in stand-alone growth in TiVo's next fiscal year which will start to contribute $8.50/mo ARPU subs to the bottom-line.
With the current international and domestic deals TiVo will achieve EBIDTA break-even in Q4 and with the expected growth in MSO subs coupled with lower spend on litigation and R&D, TiVo will achieve GAAP EPS profitability in FY14 (next calendar year). Finally, there is a very high probability (>80%) that TiVo will announce additional domestic and international deals in the near future that will contribute to FY14 forward profitability. Lastly, you completely discount the contribution from TiVo's recent acquisition TRA which will materially contribute to quarterly revenue in FY14 forward.
As usual it looks like we are fading and the shorts aren't being squeezed.
The shorts must be nervous especially with the VZ trial now less than a month away. There was also news from TiVo Research and Analytics this morning (TRA) which appears to be more good news. I added to my position on Friday with a nearer term options trade (Nov '12) so I'm feeling pretty good about the trade right now. It should be an interesting day.
I would say the results were in-line to slightly better on estimates. I think total revenue might have actually been just below consensus but that is based on something I read unofficially from an analyst. From a Thomson Reuters perspective, there seems to be consistent confusion related to total revenue versus service & technology revenue. Taking some time to recover is what I'm doing related to the bullish call spread I bought yesterday (November) and I plan on adding to my position tomorrow.
Its amazing how the shorts maintain control of TiVo... this looks like a concerted effort at manipulating the stock. The analysts reiterate their buy ratings and the stock sinks.
We will see where it finishes at the end of the week. I would say its somewhat unexpected but I'm confident that SAC knows what their doing and the VZ trial will be a catalyst in the near term.
Thank you for the well-written review. I've decided to purchase the book.
I'm not sure its accurate to call a blogger on Seeking Alpha media but its very true that the OP has not presented an objective view of the lawsuit. Of course the OP has also not responded to a single comment to his post.
Completely agree. My main issue with the article is it is littered with uninformed, non-specific, unsubstantiated generalizations. Clearly the author did almost zero homework when it comes to the background of this lawsuit.
TiVo's preference is always to strike a business deal with the cable operators and/or manufacturers. As is evident by TiVo's current $1B market cap, they have suffered greatly from blatant infringement of their intellectual property. Their battle-test '389 patent will not be overturned by the USPTO. Cisco needs to and will ultimately pay TiVo for the infringement of their intellectual property.
Is there a reason you are rehashing the same article you posted on Feb 15th on MarketWatch -->
We discussed it than in the comments on that article but your TiVo bashing is way out of place in an article about Small Cap Growth Funds. Your discounted cash flow analysis that you linked to that purportedly supports your statement that, "the val­u­a­tion of the stock seems obliv­i­ous to its unprof­itable ways. At ~$12/share, the cur­rent val­u­a­tion implies the com­pany will grow its rev­enues at 50% com­pounded annu­ally for 12 years while also increas­ing its ROIC from -117% to 20%." is beyond ridiculous. I've done my own DCF that I will publish shortly on SA and have analyzed a DCF done by the well respected David Miller of Caris & Company and both easily support a present value of $12 and in fact support a much higher evaluation.
kng, I understand your frustration. As soon as TiVo stops bleeding red ink they will get noticed again as a major turn-around play. The shorts will run away and we will be valued appropriately for the growth story that will be evident later this year. Apple makes a ton of money at high-margins -- we can't say the same thing about TiVo (yet). We'll never even come close to Apple's margins but we certainly will be valued as a growth stock with higher price to sales ratios than we are currently commanding. During the bubble days the stock would be at lofty levels driven by hype but currently a company must have a better valuation story to achieve those levels. Investor's are paying for profits and growth, period.
Hi Hoxsie, I appreciate the complement! It was a lot of work developing the model. I have had a lot of feedback from my friends over on Investor Village. I would like to research & learn more about the effect of Institutional Ownership on takeovers. I agree with you that the takeover prospects improve after TiVo stops losing money -- FY14 unless they settle with VZ this year which would make FY13 profitable as well.