Commentary: TiVo changes, its stock remains the same

Stagnant stock price is remarkable

TiVo investors are a patient lot. They'd have to be, considering the stock hasn't budged in more than five years, not counting short-lived gyrations in both directions.

Let's rewind a bit -- not to the crazy days at the turn of the century, when TiVo shares were nine times higher than they are now, but to November 2002.

That's long after the Internet bubble burst and a few months after the Nasdaq bottomed. Since then, the Nasdaq is up 68%, while TiVo on Tuesday was at $7.63, just eight pennies less than where it closed on the last day of November 2002 -- thus a convenient benchmark for this analysis.

The stagnant stock price is remarkable when one considers that TiVo went from about 300,000 subscribers then to almost 4 million now. The company also went from losing boatloads of money to earning a record profit in its most recent quarter. But still the stock languishes.

Investors, in fact, would have done much better if they had picked up shares of such slower-growing competitors as Comcast, up 43% since November 2002, or Western Digital (up 356%), or NDS Corp. (up 748%).

Or even Dish Network, up 93% since November 2002 and much of the reason Wall Street has been punishing TiVo. Investors, after all, hate indecision, and TiVo's legal battle with Dish has been providing plenty of it for more than four years.

TiVo has been notching victories at every turn in its patent-infringement case against Dish, but to little advantage. It hasn't collected a dime of the roughly $128 million owed to it by Dish, and a judge's order that Dish disable its DVRs or come to a licensing agreement with TiVo was stayed almost two years ago.

When it appeared that TiVo was about to make headway at a status conference May 30 a judge set an additional meeting Sept. 4 so he'd have time to evaluate claims that a Dish software upgrade means its DVRs no longer infringe TiVo's patents. More indecision.

Further mucking things up, Dish countersued TiVo on Friday asking for a different judge to declare that its workaround software is non-infringing.

Still, TiVo has more promoters than detractors on Wall Street, one reason why the stock has bounced 45% off its 52-week low.

Kaufman Bros. analyst Todd Mitchell on Monday reiterated his $12 target, even while acknowledging that the recent court drama prolongs the time frame of an eventual resolution.

"We believe that shares of TiVo could be subject to increased volatility in the near term," he said.

Nothing new there. TiVo has traded from $2.55-$71.50 since its initial public offering at $16 on Sept. 30, 1999.

TiVo defenders, it should be noted, don't like looking too far back in history, instead preferring to use the occasion of Tom Rogers being appointed CEO for benchmark exercises like this. Even there, though, TiVo shares are up 17% since Rogers became CEO on July 1, 2005, while the Nasdaq is up 21% since then.

Fast-forwarding, though, nine analysts call TiVo shares a "buy" or "strong buy," while only four recommend selling.

JMP Securities analyst Ingrid Ebeling reiterated her "market outperform" opinion after the company last month posted a $3.6 million quarterly profit and reined in subscriber-acquisition costs from $248 per sub last year to just $116 this time around.

Another reason for bullishness is that TiVo is a perennial takeover target, though probably not until the Dish dispute is resolved. DirecTV in fact once considered acquiring TiVo.

Unfortunately for investors, TiVo bears also have a couple of compelling arguments.

First, Comcast is years late rolling out its TiVo-licensed DVR service, so subscriber gains there are a long way from replacing defectors from DirecTV, which ditched TiVo for DVRs made by NDS a few years ago. Have I mentioned NDS shares are up 748% since November 2002?

Secondly, DVRs, in about 25% of U.S. homes, will double that penetration in four years. Even so, TiVo, by some metrics, no longer is a growth company, with revenue about flat and total subscriptions falling 12% in the most recent quarter compared with the same frame a year ago.