Looking into Tivo

by Chris Connor

Taking Control of the TV

Ever heard of Tivo {TIVO}?  Apparently, at least 200,000 people have.  This is the number of subscribers that Tivo has for its personal video recorder (PVR) service.  

In a nutshell, a PVR acts something like a PC in order for users to fully customize their TV experience.  Users can record every episode of a certain sitcom or pause live sporting events on cable or satellite TV.  Tivo's service should be attractive to cable providers since Tivo gives them a better indication of what viewers prefer since viewers choose exactly what that they want to watch, when they want to watch.  Another important feature of the service is that there is no longer a need for a huge library of videotapes because the shows are stored inside the PVR.  Users can even have Tivo automatically tape all the movies of certain actor.  For example, Jackie Chan fans can have Tivo scan for any old or new Jackie Chan movies that come on TV.  That kind of a feature should catch the eye of consumers who want to have the same kind of interactivity with their TVs that they have with the Internet.

Gaining Recognition on Wall Street

Last week, Tivo caught the attention of Wall Street as its shares soared an astounding 72 percent in one day.  The huge price spike was to due to the company being awarded a patent for a large portion of the technology dealing with PVRs.  With that patent, which is entitled Multimedia Timewarping System, Tivo should be able to lessen its dependence on subscriptions because the ability to rake in additional revenue from licensing its technologies to cable providers and any potential PVR competitors. 

This is not to say that subscription revenue is not important, because Tivo has been rapidly ramping up subscriber growth.  During Q1 FY02, which ended April 30, 2001, the company added 35,000 new subscribers to its Tivo service.  Moreover, the company has more than doubled its subscriber base over the past five months. 

Operating Results Beginning to Pick Up Steam

Due to the substantial increase in the number of subscriber's to Tivo's service, the company is finally showing progress with its operating results.  In its latest quarter, Tivo generated sequential revenue growth of 48 percent and annual revenue growth of about 540 percent.  Keep in mind, however, that the company has only been taking on subscribers for its service since March 31,1999 and this has resulted in the growth appearing to be so enormous. Still, it should be encouraging for investors to see Tivo's trailblazing service grow rapidly given the lukewarm response for Web TV (Internet access via the TV).  In an attempt to curb Wall Street's fears over its cash burn rate, Tivo has also undertaken a new operating plan (job cuts) that is intended to decrease its cash needs and speed up its pursuit of profitability.  The cost reductions should definitely lend more creditability to Tivo's business model since the company is losing nearly 16 times the amount of money that it generates in revenues per quarter (going by the most previous quarter). 

Looking Forward