Get this:
Most importantly, cable gear maker Scientific Atlanta did not receive any new orders for its DVR equipped cable set top box [during Q1].
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TIVO: DIRECTV Takes TiVo to the Stars - Raising Estimates, Target
08:35am EDT 21-Apr-03 Rodman & Renshaw, Inc. (Daniel Ernst 212.356.0510) TIVO
TiVo Inc. (TIVO)
MEDIA TECHNOLOGY
MARKET OUTPERFORM / SPECULATIVE RISK
ESTIMATES REVISION
APRIL 21, 2003
TIVO: DIRECTV Takes TiVo to the Stars - Raising Estimates, Target
Daniel Ernst
212.356.0510
dernst@rodmanandrenshaw.com
SUMMARY
REITERATE MARKET OUTPERFORM TiVo could have better than expected results in both the April quarter as well as for the full year as a result of stronger than expected results and updated guidance from the company's key distributor - DIRECTV. We are raising both our estimates and price target.
DIRECTV RAISES BAR As a result of better than expected CY1Q03 results reported last week, DIRECTV raised its guidance for its TiVo enabled subscribers. DIRECTV now expects to sign between 550K - 600K TiVo users versus our previous estimate of 218K.
MAINTAIN FY1Q04 TARGETS In line with seasonal consumer trends, TiVo management expects FY1Q04 results to be fairly modest. The company expects subscriber additions to fall in the range of 55,000 - 65,000. However, the better than expected results at DIRECTV, coupled with TiVo's recent launch of the home media option could give the company better top and bottom line results.
RAISING FULL YEAR AND FORWARD ESTIMATES For the year ending January 31, 2004 (FY2004) we are raising our full-year estimates for subscribers to 1.4 million from 1.1 million, revenued from $102 million to $105 million and EBITDA from $15 million to $18 million.
COMPETITION LAGS During 1Q03, despite a host of new products showcased at CES, we saw none hit the market. TiVo's chief competitor, Sonicblue, filed for chapter 11, and subsequently sold much of its assets to Denon's parent D&M holdings. Most importantly, cable gear maker Scientific Atlanta did not receive any new orders for its DVR equipped cable set top box.
RAISING PRICE TARGET We note that TIVO shares are attractively priced at 17x FY04E EBITDA and 9x FY05E EBITDA based on our revised estimates. We are raising
our target price from $7.00 to $8.00 to reflect our revised EBITDA estimate. Our new price target equates to 26x our FY04 EBITDA estimate and 16x our FY05 EBITDA estimate. Further, we believe that the company's advertising and licensing models allow for additional growth not currently factored into our model.
DIRECTV RESULTS AND GUIDANCE In the words of Hughes Electronics' CEO Jack Shaw, "Simply put, DIRECTV US had a blowout first quarter in every single financial and operational metric." In particular DIRECTV produced 275,000 net new subscribers and generated $230 million in EBITDA first street estimates of 200,000 subscribers and $170 million in EBITDA. While much of last weeks'
attention on GMH was generated from the News Corp bid, we believe the company's strong results were generally overlooked. More importantly for TIVO shareholders, DIRECTV's updated guidance with respect to its partnership with TiVo was also buried beneath the headlines. Previously, DIRECTV had stated that the company expected roughly 10% of gross subscriber additions during CY2003 to
take the DVR option (powered by TiVo). In our estimates we had assumed 219,000 TiVo subscribers would be generated from the DIRECTV channel. During the GMH results conference call, management stated that it expected 10% of gross subscriber additions would take the DVR option equating to approximately 300,000 units, plus management stated that they expected another 250,000 - 300,000 existing subscribers would upgrade to the DVR option during the year. In total GMH management expects that by the end of CY2003, some 1 million DIRECTV subscribers would DVR enabled. As a result of this updated guidance, we are increasing our estimate of DIRECTV generated new subscribers to 500,000 during TiVo's FY2004.
INCREASING PROFIT TARGETS As a result of our revised subscriber forecasts we are increasing our adjusted EBITDA target for FY2004 to $18 million from $15 million. Recall that under the agreement with TiVo, DIRECTV assumes the
responsibility of servicing their own subscribers enabled with the DVR service. As a result TiVo generates a lower payment for those subscribers, but also carries none of the costs of maintaining those subscribers. We estimate that TiVo receives the equivalent of $3.30 per month for these OEM subscribers.
Exhibit 1 Revisions to Estimates
COMPETITION LAGS While we fully expect that competition in the digital video recorder (DVR) space will increase over time, it appears that during 1Q03, competition may have weakened. Despite a host of new products showcased at CES, we saw none hit the market during the quarter. TiVo's chief competitor, Sonicblue, filed for chapter 11, and subsequently sold much of its assets to Denon's parent D&M holdings. Most importantly, cable gear maker Scientific Atlanta did not receive any new orders for its DVR equipped cable set top box.
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