Value Line has initiated coverage of TiVo Inc. (TIVO) in its flagship product, The Value Line Investment Survey. Founded in 1997, TiVo created a brand new product and service category with the development of the world’s first digital video recorder (DVR). The company conducted its initial public offering in September 1999, followed by two subsequent offerings in June 2003 and September 2006. (TiVo has a universal shelf registration on file with the SEC under which it may issue an unlimited amount of securities.) Headquartered in Alviso, California, TiVo has over 630 employees.
Today, the company develops and provides software and technology that enables the search, navigation, and access of content across different sources, including linear television, on-demand television, and broadband video in a single experience. It provides these capabilities through set-top boxes that include DVRs or non-DVR set-top boxes, tablet computers, mobile phones, and other screens. The company also provides advertising solutions for the media industry.
TiVo primarily generates revenues through four sources. Consumer Services contributes the bulk of sales and includes consumers who subscribe to the TiVo service and typically pay monthly fees. Through Television Service Providers (or MSOs), the company works with television providers who typically pay it recurring monthly fees in order to provide the TiVo service to their subscribers. Sometimes, this segment also includes revenues for licensing and professional services and hardware sales. In Media Services, the business works directly with television and advertisers, agencies, and networks to offer a variety of solutions for the television advertising research markets. Lastly is Licensing revenues. These consist of agreements with DISH Network (DISH) and AT&T (T - Free AT&T Stock Report) in which the two firms pay TiVo to use some of its patents. These patent settlement agreements expire in 2018.
Historically, the company has distributed the majority of its products and services directly to consumers and has developed indirect channels of distribution through large domestic and international television service providers. Customers include Charter Communications (CHTR), DIRECTV (DTV), Grande, RCN, Suddenlink, and others in the United States, ONO (Spain), Virgin Media (United Kingdom) and other international companies.
The DVR and advanced television solutions market is rapidly evolving and the company faces significant competition from a number of sources. Moreover, the market for in-home entertainment is intensely competitive and subject to rapid technological change. TiVo currently identifies with two primary categories of competitors: DVRs offered by satellite, cable, and telecommunication operators and advanced television products and DVRs offered by consumer electronics and software companies. Among the first group are companies such as Comcast (CMSCA), DIRECTV, DISH Network, and Time-Warner Cable (TWC), while the second group consists of products such as Google’s (GOOG) GoogleTV or Apple’s (AAPL) AppleTV, among others. TiVo believes the principal competitive factors in the advanced television market, which include DVRs and other broadband enabled consumer electronic devices are brand recognition, functionality, ease of use, content availability, and pricing.
The company’s goal is to change the way consumers access and watch linear television, on-demand television, and broadband video by offering a best in class user experience and to generate revenue through the licensing of its branded services and technology to television viewing households worldwide. To do this, TiVo aims to offer compelling, easy-to-use products, offer increasingly differentiated features and services, develop solutions for television service providers, extend TiVo products internationally, extend and protect its intellectual property, and generate revenue from advertising and audience research capabilities.
So far, however, the company has not been very profitable. During the fiscal years ended January 31, 2012, 2011, and 2010, net income (losses) were $102.2 million, $(84.5) million, and $(23.0) million, respectively. As of January 31, 2012, it had an accumulated deficit of $(677.1) million and expects to incur additional net losses in its fiscal year ending January 31, 2013. Losses will continue to occur until the company can generate significant additional revenues or substantially reduce its expenses. Potential investors should be aware of the many risks that face this company, including a dependency on major retail partners for distribution of its products to consumers, ongoing lawsuits, and risks involving conducting business internationally, among others.
For a more thorough look at TiVo’s business prospects, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey and look out for supplementary reports as significant breaking news occurs.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.