TiVo Not on Fast-Forward

TiVo Inc. (TIVO - Analyst Report) faces increasing competition from cable and satellite providers, who have also begun offering DVR services with its digital cable in one set-top box at no upfront costs, and at comparable monthly subscription rates. Despite superior functionality, TiVo's market share has shrunk since.

Aggravating the share loss, The DIRECTV Group, Inc. (DTV - Analyst Report), which accounts for 2.8 million or nearly two-thirds of TiVo's subscriber base, began to offer a second competing HD DVR last year. As a result, TiVo has experienced large subscriber attrition.

Its new licensing deals with Comcast Corporation (CMCSA - Analyst Report) and Cox Radio, Inc. (CXR) seem very unlikely to fill the subscriber and revenue gap left by the loss of DIRECTV, while TiVo's new TV ratings monitoring service, Stop||Watch will take many quarters to gain acceptance by all the major networks.

Moreover, TiVo's new pricing plans may slow subscriber attrition but will increase subscriber acquisition costs, slowing the path to positive EPS. Trading at 2.5x estimated 2008 sales, we think the stock incorporates Stop||Watch revenues, which is the only incremental earnings catalyst at this time.

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