Billionaire Ken Griffin Sets His TiVo Stake for 5.2%

Citadel Investment Group, managed by billionaire Ken Griffin, has reported a position of 6.6 million shares in TiVo Inc. (NASDAQ:TIVO). This gives the fund 5.2% of the total shares outstanding. The company has reported almost 3 million subscribers to its DVR service, which allows consumers who receive digital cable from providers such as Comcast Corporation (NASDAQ:CMCSA) or to record shows as well as to discover new entertainment options; TiVo also provides audience data to channels and advertisers. According to Citadel’s 13F from the end of September, the fund had owned just over 1 million shares, so nearly all of its current stake has been bought in the last three and a half months. Check out more of Griffin’s stock picks.

In the third quarter of TiVo’s fiscal year (the quarter ending October 2012), the company grew its revenues by 27% compared to the same period in the previous fiscal year. Somewhat slower growth in services was augmented by impressive growth rates in technology and hardware. Gross profits were up 34% as margins increased. Because of R&D as well as SGA expenses, TiVo Inc. was only profitable because of (presumably one-time) litigation proceeds as a result of the company’s ongoing patent lawsuits with companies such as AT&T Inc. (NYSE:T). If we strip out R&D costs as an investment- a common though not exactly conservative way to analyze a technology company- then the company had $10 million in operating income as opposed to $4 million a year earlier.

However, even a $10 million quarterly income rate- before R&D and taxes- is not exactly high for a stock with a $1.5 billion market cap (and $1 billion enterprise value, as TiVo Inc. has a substantial cash position). Wall Street analysts expect the company to be unprofitable on a forward basis, for the fiscal year ending January 2014. The most recent data shows that 12% of the outstanding shares are held short, so while we know that Griffin is long it is clear that a number of traders believe that TiVo is overvalued. We’d also note that the stock has a very high beta of 2.8, particularly for a company whose cash position is such a large share of its valuation.

What other notable investors are owners of TiVo stock?

Billionaire Steve Cohen’s SAC Capital Advisors had more than doubled the size of its position in TiVo during the third quarter of 2012, to a total of 5.6 million shares (find more stocks Cohen was buying and read our analysis of TiVo from when SAC filed its own 13G). Omega Advisors, managed by billionaire Leon Cooperman and his team, initiated a position of 2.4 million shares between July and September (see more stocks Cooperman liked).

TiVo’s peers include Netflix, Inc. (NASDAQ:NFLX) and Sony Corporation (NYSE:SNE). Sony is also struggling in terms of profitability; the stock is down 33% in the last year, it is unprofitable on a trailing basis, and sell-side analysts do not see it earnings very much in its next fiscal year either. While some of its valuation multiples look low, such as its EV/EBITDA of 3.7x, we would avoid it. Netflix has been one of the most dramatic market stories over the last couple of years, and is currently priced at $100 per share. 24% of the outstanding shares are held short, though billionaire Carl Icahn has disclosed a position. Netflix, too, is also struggling to stay in the black and analyst consensus is for very low earnings in 2013.

Sustainable profitability seems to be some time away for TiVo, though it is interesting to see Griffin and Citadel taking a position here. We’d note that they might be more focused on short-term swings from the outcome of lawsuits than on long-term fundamental value, so investors should make sure that their own thesis on TiVo fits into their own time horizon rather than simply follow Citadel. We don’t find the company’s current financial situation to be particularly attractive.

Disclosure: I own no shares of any stocks mentioned in this article.