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TiVo (TIVO) Q4 Earnings Rise, Stock Up on Sale Possibilities

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TiVo Corporation reported mixed results for fourth-quarter 2017, wherein its revenues declined year over year but earnings per share marked significant improvement. This upswing in bottom-line results mainly stemmed from better-than-expected cost synergies generated through the integration of Rovi-TiVo merger as well as benefits from the recently-enacted Tax Cuts and Jobs Act.

It should be noted that TiVo Corporation was formerly known as Rovi Corporation. Upon successfully completing the acquisition of TiVo Inc. in early September 2016, Rovi adopted the iconic TiVo brand name.

Quarter in Detail

TiVo’s revenues slipped 15.1% year over year to $214.2 million, mainly due to the loss of four settlement deals for the company’s Legacy TiVo Time Warp IP that are going to end in mid-2018. Apart from this, the company faces the challenge of a tough year-over-year comparison as it noted that “Last year our core business benefited from significant IP catch-up revenues associated with settling the Samsung litigation.”

However, quarterly revenues outpaced the Zacks Consensus Estimate of $212.2 million.

The company’s revenues from the Licensing, services and software division dropped 13.4% year over year to $206.5 million, contributing 96% to total revenues. The decline was mainly due to the aforementioned settlement of the Samsung litigation.

The Hardware division’s revenues declined to $7.7 million from $13.9 million recorded in the year-ago quarter and contributed 4% to total revenues. This plunge resulted from the above-mentioned loss of four settlement deals for its Legacy TiVo Time Warp IP. The company stated that the decline was as expected and in future too revenues from this division will fall as it is moving “towards becoming hardware agnostic and solely a provider of software and solutions.”

In terms of business segments, IP Licensing revenues dipped approximately 19% year over year to $113.7 million and contributed 53% to total revenues. Under the IP Licensing segment, revenues of the U.S. Pay TV Providers and New Media, International Pay TV Providers and Other decreased 4.4% to $63.3 million and 58.4% to $17.2 million, respectively. Revenues from Consumer Electronics Manufacturers, however, climbed 9.6% year over year to $12.9 million.

Product revenues were down 10.2% to $100.5 million, contributing 47% to total revenues. Under this segment, all categories declined year over year. Revenues from Platform Solutions, Software and Services, and Other categories plunged 6.3% to $80.6 million, 19.7% to $19.2 million and 65.8% to $0.7 million, respectively.

The company’s total cost and expenses decreased 9.1% to $211.3 million from $232.4 million incurred in the year-ago quarter. TiVo’s operating income reduced to $2.9 million from $19.9 million reported in the year-ago quarter, mainly due to lower revenues, partially offset by decreased cost and expenses.

TiVo reported earnings of 15 cents in the quarter, registering a surge of 87.5% from the year-ago quarter earnings of 8 cents. The year-over-year jump was mainly due to a $26.6 million or approximately 22 cents per share benefit from the implementation of the Tax Cuts and Jobs Act.

TiVo exited the reported quarter with cash, cash equivalents and short-term investments of $269.8 million compared with $225.2 million at the end of the previous quarter.

Due to the ongoing “in-depth review of business, cost structure and options to maximize shareholder value” the company did not provide any outlook for 2018. It stated that once the process gets over, it will issue its projections for the current year.

TiVo Corporation Price and EPS Surprise

Our Take

Following the company’s fourth-quarter results, the company’s shares jumped more than 12% during yesterday’s after-hour trade. However, quarterly results were not the reason behind this upswing. The company’s announcement of evaluating strategic options, such as mergers and acquisitions, including the possibility of going private, made it attractive among investors in a motive to cash in later.

The digital home-entertainment services and solutions provider, during its fourth-quarter earnings conference call, stated that "TiVo's stock price is at a level that the company and its board do not believe reflects the true value of the business."

It should be noted that TiVo is currently highly undervalued considering its P/E multiple. The stock currently trades at a forward P/E of 7.1x, which is much lower than the industry average of 36.0x. Also, the company’s shares have depreciated 17% over the past year, while its industry has rallied 25% during the same time frame.



Furthermore, the company’s robust fundamental post merger of Rovi-TiVo makes it more attractive now. The merger has brought together two leading players in the media entertainment industry, with complementary products and services, as well as a number of patented technologies.

The new TiVo is the global leader in entertainment technology and audience insights. The company has a diverse product portfolio that ranges from interactive program guide to DVR. The combined entity has emerged as the world’s leading media and entertainment provider to deliver the ultimate entertainment experience.

Apart from this, the new company has more than 6,000 issued and pending patents, which provide it a competitive advantage over other media and tech giants.

Looking at its cheap valuation and growth fundamentals, we believe TiVo is an ideal acquisition candidate. Thus, it is wise to hold this stock at the moment.

TiVo currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Akamai Technologies, Inc. (AKAM - Free Report) , Facebook Inc. and The Trade Desk Inc. (TTD - Free Report) , all carrying a Zacks Rank of 2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Expected long-term EPS growth rates for Akamai, Facebook and The Trade Desk are 12.8%, 26.5% and 25%, respectively.

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