TiVo Widens Loss as It Adds Subscribers
Its name is virtually synonymous with digital video recording, but TiVo Inc. can’t seem to turn that into profit.
The company, based in Alviso, Calif., said Monday that its third-quarter losses tripled as revenue fell. It has in the last year more than doubled its subscribers, to 2.1 million, through rebates and aggressive marketing. But those programs ate into the bottom line.
TiVo lost $26.4 million, or 33 cents a share, on $38.3 million in revenue in the quarter that ended Oct. 31, compared with a loss of $7.4 million, or 11 cents, on $43.3 million in the year-earlier period.
The company’s shares fell 12 cents to $5.88 on Nasdaq before the earnings report was released. They lost an additional 8 cents in after-hours trading, even though the quarterly results beat Wall Street expectations. Analysts polled by Thomson First Call had predicted TiVo would lose $36.9 million, or 45 cents a share.
What worried some analysts was the company’s cash position. TiVo reported it had $88.5 million, down from $143.2 million on Jan. 31.
“That’s not a lot,” said Rob Sanderson, an analyst at American Technology Research in San Francisco. “You can’t continue to lose money quarter after quarter with just $88 million in the bank.”
TiVo executives said heavy spending to acquire new customers, including increased print and radio advertising and a rebate program that gave customers $100 back per box, contributed to the losses. It also spent money to buy inventory to stock up for the crucial holiday season. TiVo expects to get much of that money back from retailers that sell its devices, including Target Corp., Best Buy Co. and Costco Wholesale Corp.
Typically, TiVo has sold its hard-disk-drive boxes at or below cost, hoping to make money on the recurring fees -- $12.95 a month or $299 for the lifetime of the box -- that subscribers pay for the ability to download TV programming schedules.
As a result, TiVo’s strategy has been to aggressively expand its subscriber base. Last quarter, it added 419,000 subscribers, but 75% of those came from less-profitable sales through DirecTV Group Inc., a satellite company that bundles TV service with TiVo devices.
DirecTV’s success in selling service packages with TiVo “has some impact on stand-alone sales,” acknowledged TiVo Chief Executive Mike Ramsay.
TiVo forecast fourth-quarter sales to range from $32.8 million to $33.8 million, down from $42.6 million in the 2003 quarter. It also estimated operating losses to be $33 million to $36 million. And the company -- which historically has signed up half of its new annual subscribers in the holiday quarter -- forecast a total of 3 million subscribers by Jan. 31, the end of its fiscal year.
TiVo has yet to show a profit since going public in 2000, but Ramsay reiterated the company’s expectation to become profitable by the end of 2005.
