Financial analysis methods and applications

Financial Analysis

TIVO is the corporation founded in 1997 in Delaware providing technology and services for digital video recorders and the company made Initial Public Offering on September 30, 1999. Presently the company trades at NASDAQ and the corporation does not pay out dividends. The current company market capitalization is $545.12 millions as of July, 14th, 2006 and the last traded price is $6.32 per share. The company Earnings Per Share were -0.52 recently revealing overall earnings loss which the company incurred during the last 3 fiscal years. While the industry leader Comcast Corporation enjoys the profit margin of 7.90%, Viacom 13.40% and British Sky Broadcasting Group 14.21%, the TIVO company has achieved negative profit margin of -18.94%. This triggers the necessity for the management to take on very rapid actions to improve financial situation. However, the 1 year target price of the stock is expected by the analysts to be $9.91 per share which reveals that there is some insider information that the company has some profitable options it is planning on carrying out. During the last three months the prices of the company stocks were falling which in the last week the price of the company shares did not reduce as dramatically as that for the industry in which the company competes.

Picture 1. Comparison of TIVO vs. CATV Systems shares performance in the last 5 days.

The major reason for the company losses during the last three years is the fierce competition faced within the industry. Furthermore, the business is very seasonal with sales increasing drastically after the holiday season, while the majority of expenses occurring in the second and third quarter. The other problem is that due to fierce competition the company main competitive advantage has become its' brand awareness and loyalty, and only then "functionality, ease of use, availability and pricing." The main competition comes from cable and satellite operators and consumer electronic companies. The company must urgently find another ways of manufacturing, distributing and supplying its' products as presently company incoming cash flows heavily depend on its' connections with these third parties, and thus are very vulnerable. Due to limited company market capitalization it must strive even harder than those with big market cap to outsource production and face the optimal level of quality to cost ratio. The company must diversify the distribution and supplying sources and sing long-term contracts in order to achieve stability.

The distribution channels must be expanded and the products must be found in many more places than presently in only several chains with which the company coordinates.

The other main issue is for the company to come up with completely innovative services and products it can offer to the clients, as the past services are obviously already have at the downturn of their life cycle. This is the only way for the company to become profitable and start growing. The management can go into joint venture with another competitive company on the basis that the partner will invest into R&D activities, and the TIVO will devote its' brand name with other inputs, while the companies will share the benefits accordingly. Such partners must be screened for carefully.