TiVo Inc. (TIVO) Headed Toward a Profit

After a difficult multiyear period, original DVR innovator TiVo Inc. (NASDAQ:TIVO) once again has profitability within its grasp. The company recently posted Street-beating earnings for the first quarter, and forecast the coming year to investors’ and analysts’ delight. Still, TiVo operates in a hyper-competitive, technology-driven business. This makes it a difficult investment prospect that should only appeal to investors if it is determined to have a wide margin of safety. After a one-year gain of more than 30%, can TiVo still offer investors upside potential, or has the company’s recovery already been priced into the stock?

Earnings recap
The name of the game for the recently ended quarter was subscriber growth. Even though the company still posted a net loss, subscribers drifted up 277,000 in the quarter — the most substantial quarterly gain in seven years. The news helped bring the stock to its 52-week high early this week.

As for the financials, things certainly improved over the year-ago quarter. Perhaps the most important fact for investors to take in is that the company did achieve EBITDA profitability, which even management seemed surprised at given a hefty litigation expense for the quarter. The company earned $800,000 in EBITDA, and is set to remain in the black for the remainder of the year (again, in terms of EBITDA). Without the $10.9 million litigation expense with Motorola, TiVo Inc. (NASDAQ:TIVO) would have brought in $12 million in EBITDA.

On the bottom line, net loss was halved to $0.09, down from a loss of $0.17 in the year-ago quarter and far better than analyst expectations of a $0.15 loss. Revenue came in at $82.6 million, up from $67.8 million in 2012.

The main drivers for the growth were, as mentioned, subscriber growth, but also effective cost management. R&D spending was down 13% year over year, even while the company remains focused on personalizing television.

Management expects the strong growth to continue in coming quarters as the company executes its strategy and continues to develop new relationships with partners, such as the recent Atlantic Broadband distribution partnership. Atlantic is the 12th-biggest U.S. MSO provider in the country.

The company’s balance sheet remains very conservative, with current assets handily covering total liabilities and a lowered run rate.

Without doubt, things are improving over at TiVo Inc. (NASDAQ:TIVO). But does this mean that investors should take a closer look?

Not so fast