TiVo’s Q4 Results

by

At quick glance last night TiVo’s Q4 results were so bad I hesitated to make any comment until I had time to read more and listen to the conference call carefully. After doing so, I find nothing to encourage me that things were not as they looked on the surface. I know I said last week ‘terribly high expenses producing meager Sub Adds,’ but I didn’t expect this.

TiVo’s hardware business collapsed in Q4 as their completely wrong headed marketing approach crushed retail sales. What is more frightening is they’re extending those mistakes further already this quarter, and plan to throughout FY08.

TiVo increased advertising spending while holding down rebates (there’s a positve effect on channel inventory also of lowering the 1Q08 rebate which leaves more questions here.) What that produced however was 163K Gross Ads vs 221K last year, with a SAC of an unbelievable $245! FY07 SAC was $265!!!! (4Q06,FY06 were $157,$193). The rebates weren’t even the issue in hardware: it cost TiVo an extra $54 dollars in S&M, but it also cost them an extra $34 in hardware losses(incl. rebate). That’s where your $88 in additional Q4 SAC comes from YOY. BTW – the rebate per GA was actually more than $4 higher than last year ($91 vs. 86.70).

Marketing efficiency measures I’ve used plunged to their lowest levels yet since TiVo started the Bundle strategy, one by far, and only one modestly bettered the the worst levels of Q1 & Q2; all this after significant Q3 recovery.

While TiVo’s hardware sales collapsed, they were left with an inventory that ballooned YOY by $19M after writing off only $2M. I have to consider that inventory could be a further problem.

Q4 proved beyond any doubt that TiVo’s Bundle strategy is a complete failure. It also proved that shifting money toward advertising is a waste, as sales plunged on a much higher ad budget. The ads were terrible, so it is no surprise. TiVo now plans to go ahead and concentrate on failed advertising and failed Bundles this year. The results will be disastrous.

What little positive TiVo could point to, higher ARPU and Sub Ad potential from Amazon Unbox, is overwhelmed by the negatives. For example, the big jump in churnprobably wipes out the ARPU value, though I have not done a calculation. Maybe I’ll see some eager person’s stab at it.

Nothing TiVo said about their business model getting better going forward is supported by the evidence in their results. They say they are going to get more efficient in marketing, but they are doubling down on a plan that was already less efficient. They say they are going towards better EBITDA, but that still leaves around $22M/yr in D&A and stock compensation regardless.

There obviously are alot more details and I could bring up many things from earlier posts, but I don’t see the point of looking at the mushrooms and trees while the whole forest is on fire. This crazy strategy needs to be stopped promptly. Who will do it? Will the Board step up?

Advertisements

2 Responses to “TiVo’s Q4 Results”

  1. HDTiVo Says:

    Some observations:

    The SD market was no longer trumpeted this time. Nor was Kidzone, analog cable deployment… TiVo emphasized the HD market instead and indicated their current offering wasn’t working at the high price; the reduced cost HD TiVo is obviously going to be an attempt at bettering that situation. Problem: more likely the unit keeps them on the same HD tech/cost curve.

    No Sub guidance. Q4 GAs were much lower than I remember the 3Q call mentioned. Sub growth probably very uncertain.

    The talk of higher ARPU on new subs was less defined and didn’t sound as great as Q3. Note price change this QTR only involves lower 1yr pricing; expect less aggressive ARPU growth.

    Ad business looks like it can add some nickles and dimes to ARPU, but that doesn’t seem to compensate for SAC costs, churn, etc.

    Video download business uncertain. No real revenue contribution now. Maybe sales through future Unbox HME app on the TV will give TiVo some revenue. Unclear. Also, when subscription DOD services might contribute unclear. I definitely think Unbox makes GAs easier to get, but I don’t think enough magnitude there.

    Ad campaign sounds like its not ready until Q2. Spending likewise.

    Can’t understand how they figure reducing total marketing spending can maintain the same sub growth as FY07. Very speculative, with Q4 evidence just the opposite.

    Comcast small rollout sounds like late spring. “Much” of system by end of 2007. Does “much” mean less than 50%? 30%? Nebulous. At the same time DTV sub loss really kicking in already.

    Mentions of growing subs more “efficiently” not backed up with details. The free retail offer didn’t work. The ads didn’t work. How will this year’s plan work?

    G&A down from legal.

    Hired sales personnel. How much bulk added to operating expenses?

    Earthlink deal doesn’t sound particularly valuable. Amazon positive. Retail HDTV & HD TiVo link not supported; sounds wishful.

  2. charlie Says:

    Why are the HD tivo’s so expensive? What is the component breakdown? Was it the R&D to reconfigure the boxes?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: