Satellite : Tivo's Growth Fading

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Tivo's Growth Fading (TIVO, SATS, NFLX)
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When they first hit the market in the late '90s, the record now and watch later digital video recorders marketed by Tivo (Nasdaq:TIVO) were the perfect TV watching solution for an increasingly time-stressed TV viewing public. Fast forward a decade and its clear the company is struggling to maintain its growth in the face of increased competition from the likes of satellite channel providers and increasingly sophisticated generic digital video recorders (DVR).

Litigation Win Masks Core Business Problems
The company released its third-quarter results last week, and while earnings for the period soared as a result of the company booking a $105 million litigation award from its successful lawsuit against Echostar the underlying operating trend remains weak. While reported earnings per share for the period soared to 98 cents compared to a loss of 8 cents per share a year earlier, if you exclude the litigation award, Tivo produced a loss of one cent a share.

The drop in operating revenue can be directly tied to the slump in sales, which dipped 14% to $64.5 million from $75.5 million for the same period a year earlier. Subscriber growth decelerated to 44,000 from 69,000 new subscribers over the same quarter a year ago. (For more on calculations such as these, be sure to read our related article Analyzing Operating Margins.)

Trouble in Tech-Toyland
Despite the obvious growth issues, company CEO Tom Rogers described the latest quarter as the best in the company's history. Looking ahead, it's now looks doubtful that Rogers will be able to make similar characterizations for the company's performance. Consumer electronics sales are expected to be decidedly underwhelming over the holiday season as evidenced by the grim warning issued Tivo's major retailing partner Best Buy (NYSE:BBY). Tivo now expects a fourth-quarter net loss of $10-12 million.

If there is one point of light amid the gloom, it's the recently announced deal with movie renter Netflix (Nasdaq:NFLX) to stream movies from Netflix's 100,000+ film catalog to Tivo subscriber's boxes. The move is designed to widen the gap between Tivo's feature-rich offering and that of generic DVR boxes.

The Final Word
When it first hit the scene a decade ago, Tivo had the advantage of innovation and novelty; that's no longer the case. The range of options available to viewers is wide and increasing every day. This is a saturated market with few growth opportunities, and that suggests that Tivo will continue to generate losses for the foreseeable future.