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

To: Bill Harmond who wrote (1116)	8/21/2003 3:16:52 PM
From: Bill Harmond	Read Replies (1) \| Respond to of 2093

From Briefing.com 14:16 ET Ahead of the Curve: TiVo (TIVO) 9.27 +0.30 (+3%) TiVo has never lived up to the gigantic "revolutionize TV" vision that the founders, management, venture capitalists, and public investors have all had for it. It is a great product and it does change the way you watch TV. You may remember a Stock Brief that appeared last May 8, wherein I described how my family reacted to the new TiVo in our home. The main problem was expressed by 18 year-old daughter who said "its too complicated!" Since that time, everyone has come to love the product, but the experience illustrated a core problem: it is just too hard for consumers to visualize the benefits of this product, before the purchase. There was a cartoon in the New Yorker over the summer that shows a couple in an appliance store with the women holding a refrigerator door open and looking at the man. The man is saying "I don't care. I am not buying a refrigerator that has a learning curve!" That cartoon captures the reason TiVo has never lived up to its grand vision. What now? The company successfully raised an additional $26 million in a secondary offering earlier in the summer and has filed a shelf-registration for $100 million in a variety of securities, including debt, preferred stock, common stock, and warrants for both equity and debt. Blanket shelf registrations like this are always troubling, because there is no way to calculate the type of dilution that might occur or the level of debt payments that will be introduced. It is more of a warning than anything else, but since the registration represents almost 20% of the current market capitalization, it should concern all common stock holders. The real problem at TiVo, however, is revenue. The company simply has not taken the world by storm. [Here is a chart of the revenue trend for the life of the company.] What to look for in today's earnings release, after the close: A long term investor should look for three basic things (forget about EPS - doesn't matter): 1) Revenue - the company will try to get people to focus on subscribers, but revenue is all that matters. Estimates are for a paltry $16.5 million. If that happens, the trend is decidedly downward, just look at the graph. Not good. 2) Subscribers: the cumulative subscription number is important, but more important is the percentage of cumulative subscribers paying recurring fees. Last quarter, that percentage was 34% of 703,000 subscribers, or about 240,000 subscribers. The other subscribers have paid the one-time lifetime fee. Don't look at the subscriber growth number. Find the total cumulative subscribers, multiply by the percentage paying recurring fees and compare that to 240,000 for the sequential growth. This growth is the key metric for the company. If it is paltry, you can expect the terms on the inevitable $100 million debt or preferred offerings to be extremely unfavorable to common stock. 3) Future Dilution. This probably won't be addressed in the press release, but someone should ask about it in the conference call. However, since most of the analysts on the call are likely to be from investment banks that would like to be part of the $100 million offering, embarrassing questions are not likely. (Deutsche Bank underwrote the $27 million common stock offering in June.) Those three items are far more important than any other item in the release, but the mass media will probably only focus on the EPS number and subscriber numbers and any remarks that management makes about "revolutionizing TV." Those comments interest journalists in all mediums because a threat to broadcast TV networks is still a threat to the media. We think the biggest threat around the TiVo table is the threat to common stockholders. Since inception, almost $550 million (half a billion dollars) has been invested in this company and its not enough. The market capitalization is about equal to the total capital invested, meaning no wealth has been created by TiVo since it was founded. - Robert V. Green, Briefing.com