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Tickers in this Article: tivo, dish, dtv, yhoo, goog, csco, mot, sne, dell, hpq
Since the start of the year, TiVo (TIVO) has shown shades of its former self as its shares have risen nearly 70%. The resurgence at TiVo can be attributed to several things including improved financial performance, patent victories and deal extensions along with rumors of a takeover. The question is whether these catalysts are enough to send the company to its pre-bubble highs.

TiVo reported a narrowing of losses in the latest quarter as it lost $19.5 million compared to $33.7 million in the same quarter last year. The narrowing was due to lower hardware costs and general and administrative savings along with a minor increase in revenue.

The company has yet to post a year of profit since it went public in 1999, as it has racked up nearly $800 million in losses. There was a bright spot last year as the company reported its first ever quarter of profit, earning $240,000 in net income.

There were also two significant developments for TiVo since the start of the year. The first was the three-year contract extension with DirecTV (DTV), the agreement ensures that the TiVo service will continue to exist for DirecTV TiVo subscribers until at least February 2010. This was an important deal for TiVo as there are more than 2 million DirecTV users that have TiVo-enabled units.

The second development was TiVo's patent victory over EchoStar Communications (DISH), which sent TiVo shares up 20% in after hours trading. A jury awarded TiVo $73 million as compensation for lost profits and royalties, it was found EchoStar had willfully infringed on TiVo patents. This has led some to believe, that if the verdict stands, other industry players to sign licensing agreements with TiVo to avoid patent battles.

Another event that sent TiVo shares higher was an article in Barron's suggesting that TiVo is a likely takeover target from the likes of Cisco (CSCO) or Motorola (MOT), with others even suggesting Yahoo (YHOO) or Google (GOOG) as likely acquirers. However, along with losses, the other constant at TiVo has been takeover rumors that have yet to materialize. For this reason investors should be cautious about the amount of stock they put into such rumors.

The idea of TiVo is simple and logical as its service gives you the ability to watch your favorite shows, not based on when they air, but when it fits your schedule. The problem has been successfully implementing this great idea into a profitable business. Something that TiVo hasn't done nor is expected to do for some time, as it is expected to post losses this year and next. This goes to show that while the idea itself is great, the company's product is not enough to set it apart from the others in the market. And continued stiffening of competition is only going to make turning around the losses that much more difficult.

Cable companies have been meeting consumer demand for DVR by incorporating recording capabilities into cable boxes. For consumers, this consolidates content and recording capability into one subscription fee instead of having to pay for cable and pay for TiVo. Hardware device makers such as Sony (SNE), Dell (DELL), and Hewlett-Packard (HPQ) are building devices that record programming onto hard drives, only adding to the available options for consumers. This goes to show that even while TiVo was the pioneer of the DVR and has the strongest brand name, the product itself is easlily commoditized, making it difficult for TiVo to succeed.

TiVo's significant lack of profitability along with stiffening competition within the industry should caution investors that have enjoyed this good news run to seriously consider taking some or all of their investment off the table.

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