Just because you develop a popular new technology, there’s no guarantee you can control its destiny. Digital video recorder (DVR) pioneer Tivo (Nasdaq: TIVO) convinced cable companies it’s program-recording devices would revolutionize viewing habits, as it was far more functional than a plain-old VCR.

Since its founding in 1997, the company quickly gained traction, hitting almost $100 million in sales by fiscal (January) 2003, roughly $275 million by fiscal 2008, with expectations of reaching $500 million in annual sales by the current fiscal year.

But cable operators had another idea. Time Warner Cable (NYSE: TWC) and other large cable companies decided to go with cheaper DVR devices made by firms such as Cisco Systems (Nasdaq: CSCO) and Motorola Mobility Solutions (NYSE: MMI).

As a result, Tivo’s sales have been falling ever since, and investors began to wonder whether the company would even be around a half-decade from now. Well, that obituary was premature. Tivo recently delivered a surprisingly strong quarter, fueled by better-than-expected new subscriber gains.

In the quarter ended October, Tivo showed sequential gain in net new subscribers for the first time in almost two years. And analysts say the numbers will look even better in the quarters to come.

#-ad_banner-#A shift to the second tier
Tivo grew frustrated in its dealings with the largest cable operators (known as MSOs), which were hammering the company on price. A refusal to cut prices sharply led to terminated contracts, so Tivo’s management decided to focus on second-tier MSOs. Smaller MSOs lack the engineering resources to deliver the robust technology Tivo has developed. The move seems to be paying off now.

For example, United Kingdom’s Virgin Media, which has more than 2 million subscribers, has paired up with Tivo. Virgin’s rollout is taking place at a faster-than-expected clip, which accounts for Tivo’s solid quarterly results and projected robust new net adds for the next few quarters as well. But this isn’t just about Virgin Media.

Tivo is also ramping up with Spain’s ONO with plans for a steady rollout. In the United States, the company is running a pilot program with Charter Communications in Texas that could roll out across Charter’s entire network if it’s successful. On a recent conference call, management noted ongoing discussions with other MSOs and expects to make a few announcements regarding new customer wins in the next few months.

Tivo’s subscriber base appears to have bottomed out at 1.9 million this past July, but could rebound to 4 million by the end of 2012, according to analysts at Brean Murray. By their math, the subscriber base could swell to 6 million a year later and 8 million by the end of the following year (which ends January 2015).

Analysts cite a pair of other reasons Tivo should hold great appeal. First, the company carries $400 million in net cash, which amounts to $3.50 a share. Second, the company is heading to court soon and could see a successful big payday. Tivo is suing AT&T (NYSE: T) for patent infringement, and the trial begins on Jan. 9, 2012. In addition, Tivo won a separate legal victory against Verizon (NYSE: VZ), with a settlement conference expected to start on Jan. 4, 2012. Analysts at Albert Fried say the two lawsuits could yield a combined $350 million to $600 million for Tivo, or $3 to $5 a share.

Risks to Consider: Although Tivo owns — and has successfully defended — a wide range of patents, rivals such as Cisco continue to invest heavily in new technologies that could leapfrog Tivo in terms of innovative features.

Action to Take–> Shares of Tivo have swung wildly from $7 to $12 this year but are now down to roughly $9.55 — despite the impressive October quarter and apparent newfound momentum in the subscriber base. Analysts now say the stock has 50% upside — or more — as the company delivers a few more robust quarters.

Analysts at Albert Fried sees shares moving up to $15, using a sum-of-the-parts analysis of the cash balance, the current subscriber base and a discounted value assigned to the pending lawsuits. Brean Murray applies a similar methodology and arrives at a more modest $14 price target. JMP Securities, with an $18 price target — or almost 100% above current levels — is the most bullish on the Street, due to “compelling progress toward stronger MSO subscriber growth.”

Shares may quickly move up into the teens if Tivo agrees on a settlement with Verizon or wins the patent-infringement lawsuit against AT&T in January. To get shares at the best price, keep your eyes and ears on this stock, and be prepared to act quickly in case the company signs a major contract with an MSO in the coming months.