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San Jose Mercury News

By Michael Bazeley, San Jose Mercury News, Calif.

Nov. 30--TiVo posted a narrower-than-expected loss for the third quarter Tuesday, thanks to a surge in new subscribers, but its stock slumped on concerns about growth prospects and warnings from executives about fourth-quarter losses that could reach $22 million.

The San Jose company reported a net loss of $14.2 million, or 17 cents a share, compared to a loss of $26.4 million, or 33 cents, for the same period a year earlier. Revenue surged nearly 30 percent to $49.6 million from $38.3 million in the same quarter a year ago.

Revenue from services and technology rose 52 percent to $43.2 million.

The company generally beat analyst expectations for the quarter.

Analysts were expecting the company to lose 24 cents a share on services and technology revenue of $42 million, according to a survey by Thomson Financial.

But TiVo shares sank 9.6 percent to $5.18 in regular trading after company officials projected that fourth-quarter revenues would fall short of analyst expectations. The earnings report was released about 30 minutes prematurely. Shares were unchanged in after-hours trading.

"The guidance was a little disappointing," said Rob Sanderson, an analyst with American Technology Research. "They're struggling. They have some big challenges."

TiVo virtually created the digital video recorder market, developing software, hardware and a subscription service that lets people easily record television shows. But the company is now facing stiff competition, especially from satellite and cable companies that are beginning to offer their own DVRs.

The company added 434,000 subscribers in the third quarter. But the bulk of those -- about 379,000 -- came via a partnership with DirecTV, the nation's biggest satellite-TV provider. DirecTV is now marketing its own DVR.

New TiVo customers who signed on through other providers fell by half to 55,000.

Chief Executive Officer Thomas Rogers, who was hired to replace co-founder Mike Ramsay in June, called the quarter's financial results "reasonable" given the competitive landscape.

Rogers outlined three areas the company is attacking to help it grow -- marketing and distribution, differentiating the TiVo service from competitors and building partnerships with other companies.

Rogers pointed to a recent deal that lets people schedule recordings through Yahoo's TV page, and features that allow subscribers to copy their recordings to portable devices such as video iPods and Sony's PlayStation Portable.

Rogers also said the company is finding that many consumers still do not understand how TiVo works, so it is adjusting its marketing strategy accordingly.

"We are finding that explaining the product in-depth increases consumer response," he said. "Two-minute ads are more effective that one-minute ads. Thirty-minute infomercials are the most effective of all."

The company is also testing different pricing models geared toward consumers who do not like costly up-front fees.

Analyst Daniel Ernst of Hudson Square Research said that TiVo is more successful than many outsiders give it credit for. Excluding TiVo's costs to acquire subscribers -- which grew in the third quarter from $275 to $308 per person -- the company is profitable, he said.

Ernst also noted that TiVo's service offers far more features than competitors. Just this week, it announced plans for a feature that will let subscribers search for television advertisements and view them on demand. And the company has a deal with Comcast Cable provide the software for its DVRs, starting sometime next year.

"I don't think they need to be turned around," said Ernst, who has a "buy' rating on the company. "It's perception that needs to be turned around."

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