TiVo (TIVO) investors can finally click the green "thumbs up" button on their shareholder remotes with confidence. The digital video recorder pioneer closed out its fiscal third quarter with 117,000 more subscribers than it started with.
This may not seem like a big deal, but keep in mind that TiVo has been shedding couch potatoes for a long time. This is actually the first time in four years that TiVo signed up more new accounts than it lost to cancellations.
It's a welcome achievement, but TiVo can't stop now.
There's Nothing Good on TV
There are just 2.04 million total TiVo subscriptions. You were probably expecting a bigger number, and that's understandable. It may seem as if most homes have TiVos, but in reality most TV buffs are recording and playing back shows on knockoff DVRs. Cable and satellite television companies often provide their own boxes to subscribers.
This doesn't mean that all pay television providers are offering generic boxes. TiVo's growth these days relies largely on these multiple service operators -- from all over the world now -- marketing TiVo to their customers. Just 1.135 million of TiVo's 2.045 million subscribers are serviced directly by TiVo, and that figured actually did go down during the quarter.
This is a pretty important distinction, since TiVo generates an average of $8.22 a month from its direct subscribers but only receives an average of $1.65 a month for users going through third-party multiple service operators.
Thinking Outside the Box
TiVo has used its valuable patents to stand up to knockoffs. It took a few years, but TiVo finally emerged with a nine-figure settlement out of DISH Network (DISH). However, the value of its DVR business and its valuable time-shifting patents face an even greater obstacle than cable companies willing to trample over TiVo's intellectual property. The very way that many of us are consuming TV is changing.
There are now several online services offering free streaming of as many as tens of thousands of titles. There's no longer a need to zap through long commercials or even record the shows in the first place. Streaming websites and the growing catalog of on-demand options from cable and satellite television providers make it easy to see that CSI or Big Bang Theory episode you missed earlier in the week.
TiVo realizes this. It was one of the first home theater hardware companies to incorporate Netflix (NFLX) streaming into its DVRs. TiVo continues to update its products regularly, trying to stay a step ahead of the competition.
The one unwelcome streak that TiVo couldn't lay to rest was its lack of profitability. TiVo has now posted deficits in 12 quarters in a row. However, it's easy overlook the red ink this time. For the first time in a long time, the number of TiVo couch potatoes is growing. That in itself is news that's good enough to pause, rewind, and hear again.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of Netflix.