- Cable’s once rapt audience has been cutting the cord in droves.
- But one left-for-dead company is making a shocking recovery.
- Shares won’t stay this cheap for long.
Thirty years ago, cable television was one of the most powerful forces in the world.
Through its walled garden, a person could get their news, movies and sports – all without leaving the comfort of their home.
Advertisers shelled out the biggest premiums to have their ads beamed directly to these rapt audiences.
Fast-forward to today – after 20 years of high-speed internet and 10 years of smartphone expansion – the game has changed completely.
Cable customers are cutting the cord in droves and advertisers’ fat ad dollars have shifted dramatically in favor of mobile devices.
But as senior analyst Jonathan Rodriguez notes below, one left-for-dead cable services firm has made a shocking reversal. And it stands to make investors a killing.
Pause, rewind, fast-forward.
It’s been nearly two decades since cable watchers were given the power to perform these actions on a live TV program.
Sure, the VCR allowed viewers to tape their favorite shows or sporting events.
But you could only zip through this content after it was recorded – and audio/visual quality wasn’t nearly as good as it was on TV.
That all changed in the late 1990s, when TiVo (NASDAQ:TIVO) Corp.’s first digital recording device hit the market.
For the first time ever, users could record their cable or high-quality satellite feeds and hit the pause button.
And while the recorded content was compressed from its original state, it was practically indistinguishable.
I was teenager then, but I’ll never forget how profound the invention was – or still is.
Unfortunately, the idea of TV watchers fast-forwarding through carefully curated ads didn’t sit well with marketers.
TiVo waged a decade-long war with advertisers – and cable providers, too, which came to market with competing recording devices in the 2000s.
To be sure, the company still faces the same pressures today.
But after years of unprofitability, the company finally saw positive earnings growth in 2011.
And several major developments have put profits on the horizon for TiVo and its shareholders…
If You Can’t Beat ’Em, Sell Out
After proving themselves profitable, TiVo was acquired by rival tech firm Rovi Corp. for $1.1 billion last year.
In September 2016, Rovi assumed TiVo’s name and began trading under the ticker TIVO.
It’s a little confusing, I know. But TiVo now represents the combined companies Rovi and the former TiVo.
Rovi not only acquired TiVo’s existing customer base but also its portfolio of more than 280 patents. The combined company now holds more than 6,000 issued and pending tech patents.
In addition to subscription revenue, TiVo also licenses its patents out to firms building their own DVR tech.
Recently, subscription revenue has declined in tandem with a drop in cable viewership. But TiVo still commands a base of more than 20 million subscribers.
And the company has made up for the shortfalls through licensing – which now makes up 54% of total revenue.
In fact, TiVo just signed a multiyear licensing deal with Roku – the company that developed the wildly popular streaming TV device for cord cutters.
TiVo trades at just 10 times forward earnings – well below the industry average (25) and the S&P 500 (20). Earnings are also projected to rise 48% next year.
It also trades at 2.6 times trailing sales, compared with 5.7 for its peers.
And stock has a price-to-book value of 1.2 – an 82% discount to the industry (6.8).
Better still, the company sports a 4% yield – nearly double the yield of the S&P 500.
The company also received a favorable ruling against Comcast (NASDAQ:CMCSA) over copyright infringement last week, which resulted in a 15% pop in shares.
And at a market cap of $2 billion, the company has plenty of room to grow – or be acquired itself.
Either way, with double-digit earnings growth on deck for TiVo over the next two years, shares won’t remain this cheap for long.