DVR maker TiVo (
) is a competition-battered, money-losing tech company whose core
assets are patents with less than six years to live. So is it
really possible that this is a growth stock?
Hedge funder Steve Cohen seems to think so. His SAC Capital
greatly boosted its stake in TiVo to about 5.2% of the company. A
whole lot of industry analysts are bullish on the shares too,
which has helped the share price gain some 29%-plus in the past
90 days, as seen in a
These are interesting endorsements for a company that rarely
turned a profit in 13 years. In the early 2000s, TiVo gained verb
status with TV-top boxes for recording television. It
commercialized the features dearest to viewers' hearts, like the
ability to easily skip commercials and to record and play back
different shows simultaneously. But it only really made money by
suing the cable and tech companies that allegedly infringed on
its patents with competing devices.
TIVO Net Income TTM
TIVO Free Cash Flow TTM
) and AT&T (
) paid up first. On Sept. 24, Verizon (
) agreed to pay $250 million to license TiVo technology rather
than fight it over patents in court. This one was big enough to
turn 2013 forecasts to profits from a loss to about 80 cents a
share. Many believe the Verizon agreement is a sign that other
defendants -- Google's (
) Motorola, Cisco (
) and Time Warner Cable (
), in particular - will pony up cash sometime soon too. Simply
settling all these actions would help TiVo's balance sheet
immensely. The company expects to spend some $10 million in legal
expenses during the third quarter alone.
The profit stream at TiVo has improved greatly in the past
year. TiVo subscriptions were up some 41% in the latest quarter,
largely on partnerships with overseas content providers like
Virgin Media in Europe. TiVo plans more of these partnerships
going forward, moving it away from the business of selling
directly to the public.
TiVo still faces some big growth obstacles, particularly in
the more competitive U.S. market. Here, Apple (
) and others have been working for years on ways to bypass TiVo
Inc., and many now have devices of their own. The licensing
payments they pay TiVo, litigated or not, are bound to be
short-lived, as TiVo's core patents expire in 2018. TiVo's
reputation of offering a superior product helps it compete now,
but that may change when Apple gets its own device into cable and
satellite customers' homes.
At the moment, investors seem to be dismissing these issues.
TiVo shares trade at a price to sales ratio of nearly 5. While
that's not unheard of for a growth company, it's pretty unusual
for a company that's had this kind of growth track record.
TIVO Revenue TTM
What enticement are we missing here? Probably the eternal hope
that one of those TiVo competitors will just buy the company
outright. TiVo and its bothersome patents make for common
takeover gossip, and there are plenty of cash-heavy competitors
that could easily afford it. Speculators love to name Apple as a
possible suitor, although Apple has never shown much fondness for
$1 billion public companies.
So perhaps TiVo is a growth stock. Just not in the ordinary
sense of the term.
Dee Gill is a contributing editor at YCharts, which
includes the just-released
YCharts Pro Platinum
for professional investors.