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TiVo Acquires TRA Inc.

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In a deal worth $20 million TiVo Inc. (TIVO - Free Report) announced the acquisition of the advertising analytics company, TRA Inc. The acquisition is expected to close this month. Following the takeover, management expects an increase in TiVo’s adjusted EBITDA for the next fiscal year.

TRA Inc. provides analytics software to advertisers and TV network operators, which correlates 1.5 million viewer’s TV viewing and their purchasing habits.  Through the various analytics tools, TRA’s clients can identify their targeted audience. This would be beneficial for TiVo, as the company plans to set up another business unit called TiVo Research & Analytics after the completion of the acquisition, which would provide information to its clients about the target audience. Eventually, this would improve TiVo’s chances boost its ad revenues.

Moreover, TRA Inc.’s incremental revenue would positively impact TiVo in the long run. Also, TRA’s clientele includes in excess of 45 brand clients like Procter & Gamble Co. (PG - Free Report) and Oscar Meyer and 27 network clients such as CBS Corp. (CBS - Free Report) , A&E Television Networks, ION Media to name a few.

Our Take

We are optimistic about TiVo’s long-term growth potential due to new partnerships, product launches, international expansion and accretive acquisitions. We believe that TiVo will continue to witness strong subscriber growth based on its partnerships with Virgin Media Inc. , RCN, ONO, Charter Communications, Comcast Corp. , Suddenlink and DIRECTV going forward.

However, pending patent litigation issues (Verizon, Motorola and Time Warner), rising subscription acquisition costs, higher hardware and sales & marketing costs are expected to impact TiVo’s profitability over the next few quarters. 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 (6-12 months).

Currently, TiVo has a Zacks #3 Rank, which implies a Hold rating for the short term (1-3 months).

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