TiVo Well Poised On Growth Initiatives; Should You Hold?

On Jun 2, 2016, we issued an updated research report on TiVo Inc. (NASDAQ:TIVO) .

TiVo primarily develops software and technology that powers digital video recorders (DVRs), traditional set-top boxes, computers, tablets and smartphones to search, navigate and access content from different sources, including live television, video-on-demand and broadband video.

On May 31, 2016, TiVo reported mixed results in the first quarter of fiscal 2017, with its bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. The company’s non-GAAP earnings of 12 cents per share beat the Zacks Consensus Estimate of 7 cents per share. However, TiVo’s revenues decreased 6.5% year over year to $107.3 million and missed the Zacks Consensus Estimate of $121 million.

TiVo’s innovative product pipeline is a major growth catalyst, in our view. The company’s strategy of offering content on all devices on a real time basis significantly enhances the utility of its products, which we believe will drive demand, going forward. The TiVo Roamio has gained significant traction due to its added ability to connect the company’s mobile apps and stream and download live as well as recorded television program. To improve customer engagement, the company launched the “What to Watch Now” app for iPad owners. We believe that the company’s innovative product pipeline will drive significant top-line growth over the long term.

Going forward, the recent acquisition of Cubiware suggests that TiVo is trying to enhance its global presence. Cubiware is an innovative provider of cost-effective software solutions to the Pay-TV operators in the emerging markets. The company currently provides software solutions to more than 70 Pay-TV operators across 30 countries. Therefore, the acquisition is expected to expand TiVo’s product offerings as well as global presence, which in turn will boost revenues.

It is to be noted that the series of legal settlements with Arris, DISH, EchoStar Corp, AT&T (NYSE:T), Microsoft (NASDAQ:MSFT), Verizon, Cisco, Time Warner Cable and Google (NASDAQ:GOOGL) have opened up a recurring revenue stream for TiVo for the next 5-6 years. Through these settlements, the company has not only ensured a recurring revenue stream till 2018 ($1.6 billion), but also succeeded in lowering apprehensions about its patent rights. This will supposedly enable the company to freely use the technology. Additionally, these settlements will substantially lower litigation expense, which is expected to boost profitability, going forward.

A potential revenue stream for TiVo is advertising. The acquisition of advertising analytics provider, TRA Inc., has helped the company to focus on growing its television ad analytics business. Moreover, the company’s existing partnerships with NBC and CBS and six of the world's largest advertising companies (WPP (LON:WPP), IPG, Publicis, Havas, Carat and Omnicom Media Group) will boost ad revenues going forward.

TiVo has always tried to maximize shareholders wealth. In April this year, the company agreed to be acquired by Rovi Corporation (NASDAQ:ROVI) , which offers interactive programming guides to pay-TV companies and smart-TV manufacturers, in a cash-stock deal worth $1.1 billion. In our opinion, the deal would be more beneficial to TiVo as it has been struggling to maintain its bottom line amid changing industry dynamics. Notably, TiVo and Rovi are considered to be arch rivals and so, a merger will enhance their profitability.

However, increasing competition from the likes of Dish Network (NASDAQ:DISH) and Cablevision Systems Corporation (NYSE:CVC) seems to be the primary headwind in the near term.

Currently, TiVo has a Zacks Rank #3 (Hold).