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Technology Stocks : Tivo (TIVO) Interactive TV -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (848)	2/21/2003 12:42:01 AM
From: Bill Harmond	Respond to of 2093

zdnet.com.com

To: Road Walker who wrote (848)	2/24/2003 12:30:55 PM
From: Bill Harmond	Respond to of 2093

Lame reporting: sfgate.com

To: Road Walker who wrote (848)	3/3/2003 11:32:50 AM
From: Bill Harmond	Respond to of 2093

TiVo; Expressing comfort with current projections ahead of TiVo`s Q4 ... 10:17am EST 3-Mar-03 Sanders Morris Harris (LA Trading 800 421-0658) TIVO SMMI TiVo, Inc. (TIVO/NASDAQ): Expressing comfort with current projections ahead of TiVo's Q4 and full-year earnings release; Reiterating Buy Recommendation David W. Miller (213) 253-2278; david.miller@smhhou.com March 3, 2003 Industry: Media & Entertainment Recommendation: Buy ---------------------------------------------------------------------------- ---- Price: $5.60 Price Target: $8.00 Type: Company Update ---------------------------------------------------------------------------- ---- Estimates (Jan) 2002A 2003E 2004E Curr Prior Curr Prior Curr Prior Investment Profile 11/21/02 ---- ----- ---- ----- ---- ----- --------------------------- EPS (Diluted) ($3.69) ($1.13) ($0.62)(0.64) Share Base (mm) 51.0 P/E NM NM NM Market Value ($mm) $285.6 Cash ($mm) $40.6 Erngs./Share 2002A 2003E Prior 2003E Prior Lg Term Debt ($mm) $14.3 ----- ----- ----- ----- ----- Q1 ($1.20) ($0.55)a ($0.21)($0.23) Preferred NM Q2 ($0.82) ($0.06)a ($0.19) Ent. Value ($mm) $259.3 Q3 ($0.81) ($0.23)a ($0.12) % Leverage 6.1% Q4 ($0.90) ($0.30) ($0.10) Inst'l Ownership 13.3% Dly Trading Vol. 642,557 Price Range (52-week) $2.25 - $8.10 ____________________________________________________________________________ ____ Please refer to smhhou.com, smhhou.com for important SMH disclosures. The valuation methods used by SMH to determine the price target for this security, along with the risks, are detailed within this report. If any hyperlink is inaccessible, please call 800-423-9656 and ask for the Research Editor. SUMMARY Ahead of TiVo's Q4 and full year FY 2003 earnings release, set for after the closing bell this Thursday, we are reiterating our Buy recommendation on the stock and a 12-month price target of $8. We are currently very comfortable with our financial projections for the quarter, those being $11.7 million in service/technology revenues, correlating to a revenue/sub figure of $18.05 and a margin/sub expectation of $7.33, the latter up an eye-popping 45% versus Q4 of FY2002. The aforementioned leads us to a net income loss/share projection for the quarter of $0.30, and an adjusted EBITDA/share projection of $0.01. Street consensus for the quarter on the net loss/share benchmark currently stands at ($0.32.) (First Call does not carry a consensus figure for Adjusted EBITDA/share). For the fiscal year ended January 31, we expect management to report aggregate revenues of $58.2 million, a margin per sub figure of $50.55, a net income loss of $57.4 million, or $1.13/share, and an adjusted EBITDA loss of $0.47/share. We are also narrowing our loss/share estimate for the current quarter in progress, that being Q1 2004, from ($0.23) to ($0.21), on the anticipation of greater expected efficiencies yielded from the 'Cost of Service' expense line item. TiVo will most likely issue guidance for the current quarter in tandem with this Thursday's conference call. In completing a recent round of comprehensive channel checks on the retail level, we have been pleasantly surprised to see how robust sales of TiVo's 'Series2' stand-alone model have faired since the new year began, especially given all of the negative discourse in the marketplace concerning weak overall retail sales in virtually every region of the country. TiVo's 'Series2' model, compatible on either the over-the-air platform or the cable platform, is currently available at Best Buy, Circuit City, Good Guys, Ultimate Electronics, Amazon.com and Tweeter Electronics. Channel checks at select outlets for all of those chains, including Amazon, reveal that the Series2 machines are selling anywhere between 5-7 units per day, with Best Buy, arguably TiVo's most important retail relationship, selling approximately 10 per day. The aforementioned now includes the Series2 DirecTV/TiVo combo-box, the roll-out of which on the retail level was stalled due to a manufacturing bottleneck on the part of Hughes Network Systems, though now the new boxes can be found at most consumer electronics stores. While the delay in the combo-boxes was a mild cause for concern for some on the Street at the commencement of Q4, it looks as if robust sales activity for the Series2 standalone model made up whatever delta might have been created, and that TiVo is on pace to meet current Q4 sub guidance, which stands at a booking of between 120,000 - 130,000 paying subscribers. As of the end of fiscal year 2003, that should allow TiVo the luxury of reporting a grand total of some 630,000 paying subs, approximately 40% of which are derived from the TiVo/DirecTV combo-box. In the interest of colorful comparisons, at the end of FY 2002, TiVo had 379,000 paying subscribers, a 66% increase YOY. * Price increases: Though it was already announced in late January, today is the day that TiVo's price increase on its lifetime subscription option takes effect. Consumers who buy the TiVo service, starting today, will now cough up $299 for the privilege of the lifetime option. That increase comes just over one year after TiVo raised the lifetime sub option from $199 to $249, supporting our claim of the inherent inelasticity of the TiVo service. Though the move clearly allows TiVo a greater deferred revenue base, we believe the decision was made to raise the price of the lifetime sub option in order to indirectly persuade consumers to opt for the monthly option of $12.99, which is revenue that may hit the income statement as soon as it is received rather than amortized over four years. * Conclusion & Recommendation: While 2002 was obviously a difficult year for the markets overall, we believe there are a number of catalysts which investors can look forward to during the bulk of 2003 that could send TiVo shares higher, those being the achievement of 1 million+ subscribers, the establishment of additional technology patents in TiVo's patent portfolio, continued acceptance of TiVo-branded DVRs on the retail level, and additional licensing arrangements with select consumer electronics manufacturers. Because of the aforementioned fundamentals, coupled with outstanding execution and a favorable competitive environment, we continue to reiterate our Buy recommendation on TiVo and a 12-month price target of $8, still representing 43% upside from current levels. Our price target is derived from our Discounted Cash Flow analysis using a blended discount rate of 17.3% as a direct effect of the Capital Asset Pricing Model. * Risk disclosure: Risks to the investment thesis include new technologies that could surpass TiVo's own proprietary technology, access to additional capital for continuing operations and possible litigation from select competitors over current patent disputes. Public companies mentioned in this report: Best Buy (BBY/NYSE - $29.07) - Not Rated Circuit City (CC/NYSE - $4.42) - Not Rated Hughes Electronics Corp (GMH/NYSE - $10.19) Rated: Strong Buy Good Guys (GGUY/NASDAQ - $1.81) - Not Rated Ultimate Electronics (ULTE/NASDAQ - $8.79) - Not Rated Amazon.com (AMZN/NASDAQ - $22.01) - Not Rated Tweeter Home Entertainment (TWTR/NASDAQ - $5.40) - Not Rated TIVO Sanders Morris Harris makes a market in the securities of this company Investors should assume that Sanders Morris Harris is seeking, or will seek, investment banking or other services from the covered companies. The analyst(s) responsible for preparing this research received compensation that is based on various factors, including SMH's total revenues, a portion of which is generated by SMH's investment banking activities. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Sanders Morris Harris Group's Ratings are defined as follows: Strong Buy: We anticipate 20%-plus price upside over the next six months. Buy/Outperform: We anticipate 10%-20% price upside over the next 12 months. Hold: We believe the stock is fairly valued at current levels. Sell/Underperform: We anticipate the stock price will decline from current levels over the next 12 months. Because of market volatility, our six-month and 12-month price targets may temporarily vary from the above percentages. Of the 74 companies under coverage at January 1, 2003, nine (12.2%) were rated Strong Buy; 33 (44.6%) were rated Buy; 31 (41.9%) were rated Hold, and one (1.4%) was rated Sell. Of the 74 companies under coverage at January 1, 2003, SMH maintained five Investment Banking relationships, of which one (20.0%) was rated Strong Buy; two (40.0%) were rated Buy; and two (40.0%) were rated Hold. Copyright 2003 Sanders Morris Harris Group. The study herein is not a complete analysis of every material fact respecting any company, industry, or security. The opinions expressed here reflect the judgment of the author at this date and are subject to change. Facts have been obtained from sources considered to be reliable, but are not guaranteed. Sanders Morris Harris, its officers, directors, and/or employees may have an interest in the securities of the issue(s) described herein and may purchase, sell, trade or act as market maker while this report is in circulation. 600 Travis ú Suite 3100 ú Houston, Texas 77002 ú (713) 250-4263 First Call Corporation, a Thomson Financial company. All rights reserved. 888.558.2500 FCviaNewsEdge BROKER: Sanders Morris Harris :TICKER: TIVO TIVO.XX SMMI :SUBJECT: BCST CONW USA Copyright (c) 2003 First Call Corporation, a Thomson Financial company. Received by NewsEDGE/LAN: 3/3/03 7:16 AM

To: Road Walker who wrote (848)	3/3/2003 12:31:53 PM
From: Bill Harmond	Respond to of 2093

IVO: LOOKING TOWARD UPSIDE, UPGRADE TO MARKET OUTPERFORM Pt. 1 09:03am EST 3-Mar-03 Rodman & Renshaw, Inc. (Daniel Ernst 212.356.0510) TIVO TIVO, INC (TIVO) MEDIA TECHNOLOGY MARKET OUTPERFORM / SPECULATIVE RISK COMPANY UPDATE MARCH 3, 2003 TIVO: LOOKING TOWARD UPSIDE, UPGRADE TO MARKET OUTPERFORM Daniel Ernst 212.356.0510 dernst@rodmanandrenshaw.com UPGRADE TO MARKET OUTPERFORM We are upgrading our rating on TIVO shares from Market Perform to Market Outperform. The company is expected to release FY4Q03 results after the close on 3/6/02. Our analysis points to cash flow upside during FY2004 - we are establishing a new $7.00 price target that equates to 27x our revised EBITDA estimate. EXPECT IN-LINE RESULTS Despite a generally weak holiday selling season TiVo performed well at DirecTV and at Amazon.com. We expect that the company will meet our net subscriber additions target of 125,000. NEW PRODUCTS SUPPORT LEAD TiVo recently announced several new products that continue to position the firm at the top of the digital media marketplace. Further, the introduction of the company's home media management software is likely to generate high margin revenue representing upside to our model. PRICING SUPPORTS BETTER MIX The company's move to raise prices for its lifetime service subscription from $249 to $299 is likely to produce a better mix of monthly to lifetime customers - thereby increasing average revenue per user per month (ARPU). GENERATES ADVERTISING REVENUE The company has significantly raised the interest level in the advertising capabilities of the device, and has signed 20th Century Fox as its first major advertising contract win. We have increased our FY2004 advertising estimate from zero to $2.2 million. INCREASED EBITDA ESTIMATE We expect the impact of better subscriber mix, and the addition of a conservative advertising component in our model will provide the basis for higher profits. We are increasing our FY2004 EBITDA estimate from $10.4 million to $15 million. We believe upside exists to this estimate from advertising and licensing fees. VALUATION ROOM FOR UPSIDE Our new $7.00 price target equates to 27x our revised EBITDA estimate. Further, as discussed above, we believe that the company's advertising and licensing models allow for additional growth not currently factored into our model. SUMMARY We are upgrading our rating on TIVO shares from Market Perform to Market Outperform. Despite a generally weak holiday selling season, several indicators point to an on-target quarter. TiVo recently announced several new products that continue to position the firm at the top of the digital media marketplace. Further, the introduction of the company's home media management software is likely to generate high margin revenue representing upside to our model. The company's move to raise prices for its lifetime service subscription from $249 to $299 is likely to produce a better mix of monthly to lifetime customers - thereby increasing average revenue per user per month (ARPU). Finally, the company has significantly raised the interest level in the advertising capabilities of the device, and has signed 20th Century Fox as its first major advertising contract win. Factoring these changes to the model, we are raising our adjusted EBITDA projections for FY2004 to $15 million from $10.4 million. As a result, we are establishing a $7 price target which equates to 27x cash-flow above the While valuation has become more reasonable over the last 5 weeks, we still do not view the stock as cheap. GROWTH METRICS ON TARGET Taking into account the consumer electronic sector's poor macro performance and the generally high buzz TiVo received during the holiday season, we believe TiVo will meet our subscriber target of 125,000 net additions. We note that shortages of some devices experienced by retailers during the holidays impose the risk that TiVo could fall somewhat short of our net add estimate. LEADING CONSUMER ELECTRONIC RETAILERS REPORT DISMAL SALES It might have been the worst Christmas selling season in 32 years, with all the major consumer electronic retailers reporting same-store sale declines. Best Buy reported that same stores sales for the quarter ending 11/30/02 were down 0.4%, Circuit City December same store sales were down 6%; Ultimate electronics reported that for the two months ended 12/31/02 same store sales declined 19%; and December sales were down 12% at Tweeter. According to those firms, sales were impacted by steep discounts and by consumers preference for lower ticket items like music CDs and DVD's. ON LINE RETAILERS SHINE According to market research firm, Jupiter, online holiday sales exceeded that firm's original forecast of $13.1 billion, representing greater than 17% over the 2001 holiday season. We believe that those results bode well for TiVo sales with respect to aggregate sales. In our view, on-line shoppers represent a self selecting group of early adopters. In other words, on-line shoppers are more likely buyers of new products like TiVo versus the average visitor to a brick & mortar retailer. A HIT AT AMAZON Throughout the holiday shopping season, the TiVo Series 2 80 hour device moved steadily up the ranks in Amazon.com's tally of most popular (sold) items in the Audio/Video category. The product ended the year ranked 18th in that category, and we note that its principal competitor, Sonic Blue's replay TV close behind at 23rd. As of publication of this note, TiVo is in the number 26 spot. LATE ARRIVAL OF SONY AND DIRECTV PRODUCT IMPACTS UPSIDE POTENTIAL As we reported on our 12/03/02 note our channel checks indicated very limited availability of new devices from SONY and DirecTV. Since then, the products have hit the shelves, but we believe that the late arrival of those items eliminated any chance TiVo had of beating numbers. Nevertheless, DirecTV has reported solid results from the sale of its TiVo enabled users, and DirecTV now expects to add between 260,000 - 280,000 TiVo enabled subscribers during CY2003 - or 55% of our total TiVo net add estimate. NEW TIVO PRODUCTS/SERVICES We believe that TiVo's new products represent a definite step forward. In our view, digital recording devices need to encompass more than just video. The addition of picture and music management make the TiVo the central device for consumer's media consumption. With TiVo's easy to navigate software, the company's foray into multimedia management is well positioned to compete with PC based home entertainment networks in our view. The release of an HDTV format keeps TiVo at the forefront of the video industry, although we do not expect material sales of product this year. HDTV TiVo has released a reference design DVR platform that supports recording in several High Definition Television (HDTV) formats. The reference design will be licensed to CE manufacturers and the company expects new products to be available by the end of 2003. DIRECTV HDTV TiVo and DirectTV jointly announced the forthcoming release of the DIRECTV HDTV DVR that will recording of both high-definition, as well as standard-definition programming. The product is based on the new platform design discussed above. This higher end device will also come with a larger hard drive is currently marketed with DirecTV. The companies expect the product to be available in 4Q03. TOSHIBA DVD/DVR As part of a previously announced licensing deal with TiVo, Toshiba plans to release a combination DVD/DVR based on the Series2 platform. The product is expected to be released in the second half of this year. HOME MEDIA MANAGEMENT The TiVo Home Media Upgrade (software available to current Series2 users for an additional cost of $99) enables the TiVo to manage most other digital media content such as MP3 and JPEG files. The TiVo can also be networked to other TiVo devices or to the PC. TiVo also announced a strategic relationship with LinkSys for the WiFi networking option. Further, the upgrade enables consumers to remotely program the TiVo using the Internet. The upgrade also contains with new copyright protections that prevent users from improperly distributing unauthorized content out of the home. While we are not specifically modeling the revenue potential for the service upgrade - we note that were 10% of TiVo's net new subscribers take the upgrade during CY2003, the company would generate $4.8 million in additional revenue the bulk of which would be pure margin. SIGNS FIRST MAJOR ADVERTISING CONTRACT Contrary to popular press on the subject, PVRs, in our view, offer advertisers a powerful tool rather than a hurdle. While it is true, PVRs enable consumers to fast forward past commercials; TiVo in particular has been enabling advertisers to expand content. By recording special features over-night, TiVo has been enabling advertisers to showcase products in detail, or offer special promotions. For instance last year, Best-Buy promoted a behind the scenes jam session with Cheryl Crow - with a video only available on TiVo set-tops. TiVo has also showcased upcoming media content from movies like, About Schmidt, to new music from U2. Last month, TiVo signed what we believe to be its first material advertising contract - a multi-film agreement with 20th Century Fox. With this agreement, TiVo subscribers will be able to view full-length theatrical trailers, exclusive interviews, and other tailored content for upcoming releases. Management has recently stated that advertising could account for as much as 10% of revenues in FY2004. While we had previously assumed zero advertising revenue, we now include a FY2004 estimate of $2.2 million - or 3% of service and licensing revenues and believe room for upside exists. We note that advertising is a high margin revenue stream for TiVo - and assume that more than 50% of each additional dollar in advertising revenue will flow through to cash-flow. UNIQUE ADVERTISING METRICS In addition to providing long-format advertising, TiVo offers advertisers a powerful measuring tool. Where the widely know Nielsen rating systems employs 5,000 homes in its network, TiVo provides a base of more than 500,000 homes on which real-time determinations can be effected. TiVo highlighted that capability during the Super Bowl by releasing viewing metrics recorded throughout the game. Source: TiVo, Inc. PRICING FORCES A BETTER MIX In March, TiVo plans to raise the lifetime service contract free by $50 from $249 to $299. As TiVo recognizes the revenue it receives for lifetime contracts over the course of 48 month, the price increase raises the effective monthly revenue per unit (ARPU) for those customers from $5.19 to $6.23. Further, the company expects that the price increase will lead to a higher percentage of new customers opting for the monthly service contracts at $12.95 per month - providing additional upside to ARPU. While the potential decrease in new lifetime contracts negatively impacts cash flow, the company believes that the higher price will offset the impact - resulting in a net neutral realized impact on cash flow. LICENSING SWING VOTE During 2002, TiVo signed new or revised licensing agreements with DirecTV, Toshiba and SONY. We estimate that licensing revenues recorded during CY2002 (FY2003) totaled $19.6 million, or 21% of net revenues. We are currently estimating that TiVo will generate $7.7 million in licensing revenues during FY2004 or 7% of net revenues. Given the company's movement toward HDTV and home media management, we believe that the company is well positioned to expand its licensing base during the year, and therefore believe there is upside to our model. VALUATION ROOM FOR UPSIDE TIVO shares are currently valued at 31x our prior estimate for FY2004 EBITDA of $10.4 million. Given our increase in EBITDA assumptions to $15 million, we believe upside exists to the valuation. Our new $7.00 price target equates to 27x our revised EBITDA estimate. Further, as discussed above, we believe that the company's advertising and licensing models allow for additional growth not currently factored into our model. First Call Corporation, a Thomson Financial company. All rights reserved. 888.558.2500 FCviaNewsEdge BROKER: Rodman & Renshaw, Inc. :TICKER: TIVO TIVO.XX :SUBJECT: ACOM BCST USA Copyright (c) 2003 First Call Corporation, a Thomson Financial company. Received by NewsEDGE/LAN: 3/3/03 6:03 AM