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Suman Chatterjee
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Financial analyst-writer for the last 5 years. Writes for a number of financial publications including The Street, Motley Fool and Seeking Alpha. Completed his Bachelors in Business Administration (Finance) with GPA 3.0, currently pursuing Chartered Accountancy from ICAI, India. Specializes in... More
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  • I Am Long TiVo, Are You? 0 comments
    Nov 23, 2011 7:23 AM | about stocks: TIVO, CMCSA, DISH, T, VMED
    In January 2006, it was recorded by AC Nielson that around 1.2% of US households have digital video recorders (DVRs). Not much, but by the end of February 2011, it peaked up to around 42.2% of US households. Seems that the people are taking to digital video technology faster than expected, which is definitely good for digital TV service providing companies. But, did this result into increased bottom-line of TiVo Inc. in the third quarter results? Apparently not.
     
    Tom Rogers, President and CEO of TiVo, said, "This was a great quarter and represented a significant step in our growth strategy. Our efforts to get TiVo in more homes globally continues to accelerate as we drove approximately 117,000 net subscription additions and returned to total positive net subscription growth for the first time in four years. We also exceeded our quarterly guidance on service and technology revenues, Adjusted EBITDA and net income. In the U.K., Virgin Media has now deployed its TiVo offering to more than 220,000 subscribers as of the end of October, and RCN recently expanded its TiVo product offering through the deployment of a whole-home solution. Both ONO and Grande deployments are now live, and we expect Charter Communications to begin initial deployments shortly. Additionally, DirecTV intends to launch its TiVo offering in select markets in December with a nationwide roll-out to follow early next year. All of this is a testament to our leadership in advanced television and our ability to drive meaningful solutions to market."
     
    Rogers concluded, "This is an exciting time for TiVo as we head down a path toward sustained growth, marked this quarter by returning our total subscription base to positive growth and exceeding guidance in our financial results. Looking out at the fourth quarter and into our next fiscal year, we are focused on improving Adjusted EBITDA and achieving success in four key areas: executing on current distribution deals we have in place; signing new distribution deals; reducing R&D and litigation spend over time; and protecting our intellectual property. As these four key areas play out, TiVo is well positioned to create shareholder value."
     
    Yes, Rogers seems to be pretty excited about the current and future performance of TiVo, but why doesn't it show in the net income of the company? TiVo reported a net loss of ($24.5) million last quarter, compared to a net loss of ($20.6) million in the same quarter previous year.

    Its gross margin, standing at 41.55%, is pretty decent though compared to 59.36% of Virgin Media, 59.8% of Comcast, 41.5% of Dish Network and 51.23% of DirecTV. Let me remind you, two of the companies are tied up with TiVo. So, can we say their performance will somehow affect TiVo's performance as well? It surely might.
     
    In the third quarter report, we see a huge expense of $27.3 million in research and development. Apart from its tie-up with Virgin Media in UK and RCN in US, further launches are awaiting with DirecTV, which is going to roll out TiVo offering this December, Grande and ONO.

    Around $520 million is already put in short-term investments. It seems that TiVo has got something up its sleeve and wants to establish itself as one of the primary digital video technology and service providers in the world. And although it may be taking a bit away from the net income at the moment, it should show up in the bottom-line later on, reaping sweet benefits over the years to come.
     
    I would say, it's best to wait a bit longer and see what happens ahead. My friends, I say 'hold'. 


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: TIVO, CMCSA, DISH, T, VMED
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