Earnings Preview: TiVo

TiVo Inc. (TIVO - Analyst Report) is scheduled to release its fiscal third quarter 2013 results after market closes on November 28, 2012. In the run up to the earnings release we do not notice any movement in the analysts’ estimates.

Previous Quarter Highlights

TiVo’s second quarter loss of 23 cents came in line with the Zacks Consensus Estimate, but it widened from the year-ago period. Top line increased 6.7% year over year to $65.3 million, but fell short of the Zacks Consensus Estimate of $67.0 million. The strong growth was primarily driven by higher Service and Technology revenue.

For the third quarter of 2013, TiVo expects service and technology revenues in the range of $57 million to $59 million. TiVo expects net loss in the range of $27.0 million to $29.0 million and an adjusted EBITDA loss in the range of ($14.0) million to ($16.0) million. Litigation costs are expected to hurt EBITDA in the upcoming quarter.

For further details please read: TiVo Reports Dismal 2Q

Estimate Revision Trend

Over the past 30 days, none of the 6 analysts covering the stock revised their estimates in either direction. Thus, the Zacks Consensus Estimate for the third quarter remained at a loss of 23 cents, couple of cents wider than TiVo’s year-ago loss of 21 cents.

Analysts expect the recent partnerships with Mediacom and Midcontinent to well compliment the company’s focus on partnerships and strategic alliances to drive subscriber growth. Moreover, the $250.4 million patent litigation settlement with Verizon Communications Inc. (VZ - Analyst Report) will also be a positive factor for the company. It not only ensures a recurring revenue stream but also validates TiVo’s patents.

Recommendation

We remain optimistic about TiVo’s growth potential owing to new partnerships, product launches and international expansion opportunities. We believe that TiVo will continue to witness subscriber growth based on its partnerships with Virgin Media Inc. (VMED), Comcast Corp. (CMCSA - Analyst Report), Suddenlink and several other multiple system operators (“MSO”). Moreover, the successful monetization of patents also ensures recurring revenue stream for the company.

However, pending patent litigation issues, rising R&D costs, and higher hardware and sales & marketing costs are expected to impact TiVo’s profitability in the short term. Increasing competition from cable and satellite providers could also hurt profitability over the long term.

Thus, we have a Neutral recommendation on TiVo over the long term. Currently, TiVo has a Zacks #2 Rank, which implies a ‘Buy’ rating for the short term.