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TiVo Corp (TIVO) Q4 Earnings Fall Y/Y, Revenues Increase

Digital home entertainment services and solutions provider, TiVo CorporationTIVO reported decent fourth-quarter 2016 results, wherein its revenues improved year over year but earnings declined.

The company reported earnings of 8 cents per share from continuing operations compared with 32 cents posted in the year-ago quarter as the benefit from revenue growth was more than offset by higher cost and expenses, increased income tax expenses and higher number of shares outstanding.

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

TiVo Corporation Price, Consensus and EPS Surprise

TiVo Corporation Price, Consensus and EPS Surprise | TiVo Corporation Quote

Hence, it is the second quarterly results of the combined company. Let's discuss the quarter in detail -

Quarter in Detail

TiVo's revenues surged 68.7% year over year to $252.3 million mainly due to the inclusion of the first full quarter of TiVo Inc.'s business and revenues from Samsung's licensing agreement.

The company's revenues from Licensing, services and software division increased 59.9% year over year to $238.5 million, contributing 95% to total revenue. Hardware division's revenues grew over thirty-seven times to $13.9 million and contributed 5% to total revenue.

In terms of sales verticals, Service Provider revenues surged 43.6% year over year to $104 million and Consumer Electronics sales were $36.3 million, marking over two-fold year-over-year jump. Platform Solutions revenues increased about 2.5 times year over year to $86 million and Software and Services sales grew 10%. On the contrary, Other vertical's revenues declined 38% to $2 million.

In terms of business segments, IP Licensing revenues grew 56.7% year over year to $140.4 million and contributed 56% to total revenue. Product revenues increased 86.7% to $112 million, contributing 44% to total revenue.

The company's total cost of goods sold and expenses increased more than doubled year over year to $232.4 million from $114.4 million in the year-ago quarter. Moreover, as a percentage of total revenue, it expanded 15.6% to 92.1%, mainly due to inclusion of various one-time expenses related to the merger.

TiVo's net income from continuing operations declined 62.4% year over year to $9.9 million, mainly due to higher cost and expenses along with increased income tax expenses.

TiVo exited the quarter with cash, cash equivalents and short-term investments of $309.7 million compared with $503.8 million at the end of previous quarter.

Outlook

Upon successful completion of the acquisition of TiVo Inc., the new company anticipates to generate revenues in a range of $800 million to $835 million (mid-point $817.5 million) in 2017. However, at the mid-point, it marginally fell short of the Zacks Consensus Estimate of $820.81 million.

It further projects GAAP loss before taxes of $55 million to $70 million and non-GAAP pre-tax Income of $200 million to $225 million.

Our Take

We are encouraged by the company's robust top-line growth, which was mainly driven by the inclusion of the recently merged TiVo Inc.'s business and licensing agreement with Samsung. Although TiVo's bottom line declined year over year, it should be kept in mind that this was mainly due to one-time expenses associated with the merger.

Investors also reacted positively to TiVo's fourth-quarter performance sending its shares as high as $22.50, before settling down at $21.70 in the after-hour trading session. Notably, the stock rose 13.6% in the extended trading session.

We believe that the stock will see a significant upside once the market opens today. It should be noted that TiVo has underperformed the Zacks categorized Internet Services industry in the last three months. While the industry gained 6.7% in the said period, the stock lost 8.2% of its value.

Prior to the acquisition, Rovi provided a set of solutions that allowed businesses to protect, enable and distribute digital goods to consumers, helping them discover and manage digital media across multiple channels. On the other hand, TiVo Inc. pioneered a brand new category of products by developing the first commercially available digital video recorder. However, over the years, the company expanded its capabilities beyond hardware sales and patent licensing to online subscription services.

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 Corporation 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 company has emerged as the world's leading media and entertainment provider to deliver the ultimate entertainment experience.

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

Nonetheless, the actual synergies from the merger will take some time to reflect in the company's performance and much depends on how successfully it integrates the legacy business of TiVo.

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

Key Picks

Some better-ranked stocks in the broader technology sector are Check Point Software CHKP , Imperva IMPV and Fortinet FTNT . Of these, Check Point Software and Fortinet sport a Zacks Rank #1 (Strong Buy) while Imperva carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Check Point Software has an estimated long-term EPS growth rate of 10% and has witnessed upward estimate revision for first-quarter and full year 2017 over the last 30 days.

Imperva has an expected long-term EPS growth rate of 21.7% and has witnessed upward estimate revision for first and second quarters of 2017 over the last seven days.

Fortinet has an expected long-term EPS growth rate of 20.6% and has witnessed upward estimate revision for 2017 and 2018 over the last seven days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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