Breaking Down TiVo’s Valuation

Since last month, shares of TiVo (TIVO) have dropped from over $7 to under $5 each. This 32% selloff got my attention. Based on the company’s 3.6 million subscribers, each customer is being valued at $114 given the stock’s current price of $4.94 per share.

Since TiVo’s large distribution deal with Comcast (CMCSA) won’t take shape until mid-to-late 2006, the company has chosen to invest heavily in marketing (and show operating losses) until such deals kick in. Fortunately, the company has a large net cash position of $104 million, which can fund the company’s projected quarterly loss projection of $20-$25 million.

There is no doubt that TiVo faces extreme competitive pressures in the DVR marketplace. Nonetheless, the current value per subscriber of $114 seems low to me, given the scope of TiVo’s service and brand. Why somebody would not want to consider buying this company at this valuation escapes me. TiVo looks like an attractive speculative play at current levels.

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2 Thoughts on “Breaking Down TiVo’s Valuation

  1. Jack Miller on August 31, 2005 at 3:20 PM said:

    The stock dropped partly because of the power of INTC. The new media INTC chips will have built-in “TIVO” functions. These will include the ability to easily move video content from one device to be played on another. CMCSA is a big “partner” but IPTV is going to challenge cable companies as well as TIVO.

    I hope you can respond to my concerns as I had a substantial positon but sold most. Many thanks.

  2. Chad Brand on August 31, 2005 at 3:35 PM said:

    I don’t think INTC is a threat to TiVo. Intel makes chips, TiVo is a software program installed on set-top boxes.

    I also don’t see any meaningful challenge to the cable companies anytime soon.

    The issue for TiVo is whether or not they can keep their lead in DVR technology. If they do, service providers will want to partner with them. If not, it will become a commoditized product that anyone can offer themselves, bypass TiVo, and not risk losing out to a better product.

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