TiVo's Focus Beyond Lost Money: Shrinkage (TIVO, DISH, SATS)

TiVo Inc. (NASDAQ: TIVO) is one of those companies that has many loyal subscribers and it almost fits into being a cult stock.  The shares are lower after earnings and guidance today, but TiVo’s real flaw is something that many of us remember from a Seinfeld episode… Shrinkage!  Not all is bad, but core metrics need real improvements.

TiVo reported a loss and guided for another loss ahead.  Its quarterly loss was $20.6 million, or -$0.18 EPS, and and revenue fell to $50.9 million versus $57.1 million a year ago.  Thomson Reuters had estimates at -$0.17 EPS.  The company now sees a loss of $32 million to $34 million in the coming quarter.  TiVo is still shrinking.  Its service revenues fell 9% to $34.3 million, technology revenue fell almost 25% to about $7 million, and hardware revenue fell about 5% to $9.5 million

The company lost about 112,000 customers in the quarter to end with about 2.3 million subscribers.  A year ago it had lost 314,000 subscribers and had  2.7 million subscribers.  The good news is that the customer defections are slowing. The churn rate rose to 2% from 1.7% a year earlier.  The bad news is that it still is on par with the same rate of decline as you saw in the statistics on smokers back in the 1990’s.   The customer acquisition cost was up to $6.2 million versus $5.6 million a year ago, and TiVo’s average revenue per user fell to $7.59 from $7.65 a year earlier.

Not all is bad at TiVo and there are some opportunities here.  First is a move into Europe that can rekindle subscriber growth.  The second, and more important issue, is the patent war it has with EchoStar Corporation (NASDAQ: SATS) and Dish Network Corporation (NASDAQ: DISH) though its potential impact is hard to quantify.

TiVo shares are down 2% at $8.63 at 10:18 AM but shares had traded under $8.30 earlier this morning.  Its 52-week range is $6.92 to $18.93.  Maybe TiVo watchers can find the George Costanza scene from the “Shrinkage” episode on their TiVo devices.  Even if not, TiVo shareholders are getting their own version of shrinkage this morning.

JON C. OGG