One stockholder’s take…
Our initial impression after reading TiVo’s fiscal fourth quarter earnings release and listening to yesterday’s conference call is that the company may finally have its financial feet under it. While it will take some time to fully digest the financials and commentary, we think it will be increasingly hard for any lingering doomsayers to argue that TiVo is a failing enterprise. Continued growth, improving financials, and the impending MSO rollouts tell us that TiVo will be around for many years to come, and may even begin to thrive.
Some highlights:
- The Q4 results were better than expected on both the top and bottom lines.
- Subscriber additions were soft, though management had prepared us for this during the Q3 call. Higher service pricing, hardware pricing (at retail), and consumers’ focus on HD offerings, were given as reasons for the slow sales.
- Churn was up somewhat. This was attributed to continued attrition among the fully-amortized lifetime subscribers, as well as the consumer shift to HD. Given the lower number of lifetime time sub adds in the four-year-ago Q1, Q2 and Q3 (relative to this Q4), and the likely lower conversion to HD in the non-holiday, non-football season, we expect churn to settle for the next couple of quarters, then increase again later in the FY.
- The earnings guidance was for a near-breakeven 1QFY08. Given that TiVo usually beats its own guidance, we think there is a good chance of seeing a slightly profitable Q1, and a very good chance of seeing a profitable Q2. Management stated that their financial model will bring the company “significantly closer to EBITDA breakeven” for the full-year FY08.
- TiVo’s elimination of the lifetime service option, and its new higher-priced service options have led to increases in the average monthly revenue from new subscriptions and, consequently, ARPU. At the same time, customers selecting the pre-pay option are providing operating cash at a level comparable to that of the lifetime option. And nearly 50% of new subs are signing up for 3-year plans, providing a measure of stability to the subscriber base.
- TiVo’s advertising business continues to grow. Q4 saw year-on-year growth that contributed to a record-high ARPU of $8.99. TiVo recently renewed its advertising deal with Interpublic Media “at a higher commitment level” than last year. And TiVo’s “Program Placement” feature was launched with “significant traction.” The addition of Comcast and Cox subscribers should further improve TiVo’s advertising business.
- The word of the day was “momentum.” Tom Rogers and Steve Sordello, TiVo’s CEO and CFO, respectively, repeatedly drove home the point that TiVo’s efforts toward product differentiation (and broadband content delivery, in particular), improved subscriber value, MSO relationships, and advertising sales were all beginning to pay dividends.
- TiVo deployment on Comcast’s systems is expected to begin this spring, and on Cox’s systems later this year. In addition, we were told that TiVo availability on Cablevision Mexico will come in the second quarter.
- TiVo has already reduced the subsidy on their hardware once this year, and will continue to do so over the course of the year. This, they believe, coupled with advertising based on the many differentiating features that TiVo has developed over the past year or so, will lead to more efficient subscriber acquisition and better financial performance for the year.
- Rogers repeatedly emphasized that HD was the most significant consumer electronics trend this year, though the high price of TiVo’s Series 3 HD DVR prevented the company from fully participating in the trend. The HD trend is so significant, apparently, that the company has embarked on a crash program to introduce a new, lower cost HD DVR. While they would not commit to an introduction date, one suspects they will have it available by next Christmas if it is humanly possible to do so.
- TiVo’s lawsuit with Echostar is moving forward through the appeals process. Echostar is to have their main brief filed by April 17, and the briefing process is expected to complete this summer.