Gizmodo Tries It’s Hand at Stock Analysis

Point: How is TiVo Doing After Launching Series 3? – Gizmodo Well I have to say in general that I like the site Gizmodo. It’s got a great run down of gadgets daily and they do a damn good job covering the latest tech out.

One thing that they are *not* though are stock analysts — and when they diverge from covering the latest gadgets and gizmos into the world of stock analysis I think they do their readers a disservice.

Case in point is today’s hit piece on TiVo where they say in their second paragraph:

“A good indicator of a product’s reception can come from the stock market. At the moment, TiVo stock is about $6.61, down significantly since the Series 3 was brought to market on September 13th and far short of analysts’ median expectation of $9.50. Stock price reveals investor and analyst sentiment toward the fortunes of a particular company.”

They then go on to point that insider selling is leading them to “question just how much faith company insiders actually have in it’s future.”

To make matters worse, Gizmodo proceeds to then quote perhaps the most bearish analyst who covers TiVo, Gene Munster over at Piper Jaffrey, and then selectively pulls a few negative quotes from a few message boards before calling it a day.

Although Gizmodo didn’t actually come outright and declare a TiVo death watch like Engadget did (and then later un death watched) the piece is pretty one sided, rationalized by a limited understanding about how some of the most basic stock market data might be used to understand what’s going on at a company.

First off, Series 3 sales, particularly early on, represent a tiny fraction of TiVo’s actual revenue. To somehow conclude that Wall Street is punishing the stock because “production shortages and high prices have plagued the release,” is just insane. Wall Street is much more interested in the more current meaningful TiVo revenue and subscriber numbers than they are focused on TiVo’s bleeding edge technology. There are the cable deals, subscription deals, advertising deals, patent lawsuits and lots of other things that matter a lot more to Wall Street than how well the Series 3 may or may not be priced.

And “production problems and high prices have plagued (interesting choice of words) the release?” Huh? Has Gizmodo not heard of supply and demand? So are they suggesting that TiVo should *lower* the price in order to ease the alleged “production problem?” TiVo can lower the price when the market tells them to — which is when demand begins to fall short of price. Economics 101, dude.

Obviously some people are not crazy about spending $1,000 on a PVR — but certainly the early adopters have no problem and it seems crazy for Gizmodo to complain about high prices and scarcity of units in the same breath.

Third, I learned a long time ago that insider selling is not always the best indicator of how companies feel about their products. Any astute financial advisor will tell their client to diversify, diversify, diversify, at every possible moment. Insiders hold concentrated positions much to the dismay of their financial advisors.

Further, if you actually look at TiVo’s specific insider transactions, you have to consider the option related selling activity. For example, Director Mark Perry recently exercised a bunch of options. He very well may need to pay taxes on these transactions and hence the selling.

Someone might sell their stock to diversify. Someone might sell there stock to buy a vacation house. Someone might sell their stock to buy a boat or a plane (or the new Series 3 because it’s so expensive). Someone might sell their stock to pay taxes. But to conclude that the Series 3 is not selling well because of insider selling is just crazy.

Let me ask you this. Is Oracle also under pressure right now because there has been more selling than buying in the past 45 days? What about the hundreds of other companies that could be pulled in? Did a lot of people sell their Google stock once they could? Of course. Does this mean the company is under pressure?

Whether the Series 3 will do well is anyone’s guess. Wired magazine just named it the top PVR choice in their recent Test Issue. Will I get one? Probably not. I rarely watch television anymore and my DirecTV quad tuner TiVo does the job just fine for me.

I might buy a new Media Center PC when the CableCARD Vista units or out, but this would be as part of a strategy where I’d be upgrading my main PC anyways and part as a strategy to use XBoxes to get HDTV in other rooms of my house without having to pay for individual CableCARDs or HDTV satellite/cable boxes.

Trying to use stock tea leaves to discern how well things are going with the Series 3 is a rookie and an amateur mistake. It’s sensational and it may sell blog ads, but it’s misleading. If you are going to quote analysts I’d recommend choosing more than just the most bearish analyst on a stock. A good place to start might be sitting in on an actual TiVo earnings conference call. Media aren’t allowed on these calls though so you may have to try and bs a bit to get on it. Or you could also check out the transcripts over at Seeking Alpha after the call is over.