http://www.fool.com/news/mft/2006/mft06052521.htm?source=eptyholnk303100&logvisit=y&npu=y&bounce=y
TiVo Changes the Channel
By Anders Bylund
May 25, 2006
In Wednesday night's earnings report and the following conference call, TiVo (Nasdaq: TIVO) decided to fast-forward reality a bit and give us a glimpse of its plans for the future. There's no better time to look forward than when your recent past is full of good news, and I can see why management is excited about its market opportunities right about now.
Over the last three months, TiVo has launched new, more user-friendly hardware, renewed a fraying relationship with longtime partner DirecTV (NYSE: DTV), and won a significant court battle in its patent-infringement war against EchoStar (Nasdaq: DISH).
Revenues were up 20% year over year -- on increased subscription and licensing revenues, not expensive hardware sales. The $56.5 million in net sales handily beat analyst expectations of about $50.6 million, and the net loss of $0.13 per diluted share wasn't as bad as the negative-$0.19-per-share forecast.
Litigation costs associated with the
EchoStar lawsuit factor into these numbers, but they were not broken out separately, making it a bit harder to get a fair picture of the quarter. Depending on the outcome of the lengthy and far-from-concluded appeals process, some or all of that burden may be reimbursed in the end.
But let's go back to the future. In light of the promising court results, the company can now get excited about TiVo knockoffs from competing manufacturers like Cisco (Nasdaq: CSCO). You see, if lawsuits force rival DVR makers to pay homage to TiVo's patents, every wannabe TiVo box could be upgraded with Tivo-provided software, belatedly making it into the Real Thing.
It's a beautiful plan. Someone else gets to worry about manufacturing and the thin-to-negative margins of selling hardware, while customers still get the full TiVo experience and the company itself rakes in patent-backed licensing revenue. Customer acquisition costs fall through the floor, margins go through the roof, and both revenue and profits should grow in between.
Look for TiVo to forge new partnerships across the television market as it tries to make this vision a reality. Negotiations are already under way with Comcast (Nasdaq: CMCSA), and if the big dog pays up for the licenses, the other puppies may have to follow suit. Software sales are such a comfortable way to make a living -- and a profit.