roni - TiVo, etc.
consider the source ... that "analysis" was provided by the manager of a fund with $400,000 in assets (i.e. less than KVW trades in his personal account in a given quarter), a 5.75% front-end load, and a 12.4% back-end load? hehehehe.
It speaks volumes that his other favorite is Netflix, a company in a business with no barriers to entry, nothing unique in its business model, no patents or IP of any kind, business trends moving against it, and competition that doubtless will wipe it out of the market at some point in the future.
Like Louis, I love the TiVo franchise. Its installed base is a kissing cousin of Apple's, perhaps even more fanatically loyal. However, TiVo's likely eventual destiny is to be be bought out and gobbled up in industry consolidation. That won't necessarily happen at higher prices. What TiVo has of value is an OS and a customer base. What it is about to get, is competition from all angles. The next generation PCs (like Sony and HP's) will offer integrated DVR capabilities. Sure, their interface and capabilities will be crude at first, but they'll only close the gap over time. Meanwhile, the cable companies and the content companies want to cut TiVo out, and as digital cable and advanced digital cable boxes evolve, there is nothing TiVo will be able to provide that you won't be able to get packaged in with your cable service (and hardware).
The real problem for TiVo is this: the company has no hope of reaching profitability any time in the near future.
Here's how the numbers work for TiVo.
TiVo has 64 million shares outstanding, and negative net equity of $30.5 million -- meaning a book value of roughly $(0.50)/shr. Its current assets include less than $40 million in cash, which is juxtaposed against 59 million in current liabilities. The quarterly burn rate (negative cash flow) varies a great deal from quarter to quarter, but it's in the range of $10 million a quarter.
In other words, if TiVo doesn't get a new round of financing by this time next year, it'll be on the verge of bankruptcy, and that's only if the creditors to whom it owes $59 million in current liabilities aren't knocking on the door sooner.
The logical question to ask is whether TiVo can grow its way out of trouble.
The company averages Gross Margin of roughly 15%-20% on sales. It's R&D costs are running about $5-$6 million a quarter, and its SG&A costs are running about $8 million a quarter. While SG&A costs should decline as a percentage of revenues as revenues grow, absolute costs are bound to climb. Keep in mind too, that these numbers might actually get slightly more unfavorable in the wake of TiVo's loss in the legal action brought against it by Gemstar -- which was settled the week before last with TiVo agreeing to pay GemStar for use of the programming menus it had previously been "using" for free.
Nevertheless, let's assume TiVo can grow revenues by 50% next year. That would move it from roughly $120 million to $180 million in revs. (For comparison, average analyst estimate is for $129 million in the FY ending Jan '05). Now in an optimistic light, assume Gross Margins actually increase from 15%-20% to 25%. (This might happen b/c TiVo is beginning to sell additional high margin offerings to the existing customer base). That would yield $45 million in annual net sales. Further assume TiVo's R&D and SG&A do not increase proportionally (unlikely but rosy scenario), but remain at the $20 million and $35 million annual levels they're at now. Even under these rosy scenarios, then, TiVo is still losing money all the way out to 2005 -- well past the point where it burns through all its cash and credit.
Personally, I'm not thrilled about that future, because I love the TiVo way. In some respects, it's like the difference between a Dell world and an Apple world. I want to live in the more elegant TiVo world rather than the kludgy cable world. But they've got the trump cards, the capital, the access, and just about every advantage other than quality of experience. And unless TiVo can get another round of serious financing, it's in a very tenuous position as far as just surviving into 2005, which in and of itself doesn't change the likely outcome of the competition even if it could get that far.
I wouldn't dream of holding TiVo long unless I felt very certain that TiVo's board/managers were in the process either of cutting a deal with an underwriter to float a secondary stock offering, or were close to a deal with an underwriter to float a sizable convertible debt deal with very low interest rates. Given the absurd game the Fed is playing, and the Wall Street firms' collective desperation to create revenue generating deals, there has been an explosion in these sorts of deals. In many ways it's like the 1999 IPO market all over again in different form. And it presents an opportunity for companies like TiVo that are nearing the end of their cash to stay alive and give themselves a chance to grow out to profitability.
Even then, the odds are stacked against them. An attractive product, a profitable business does not make. Unless something dramatic happens, TiVo is not far off from providing a graphic example of just how true that is.
News 
Market Data 
Discover 
