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Earnings Preview: TiVo Inc.

Zacks Equity Research

TiVo Inc. (TIVO) is scheduled to release its fiscal first quarter 2013 results after the closing bells on Wednesday, May 30, 2012. In the run up to the earnings release we notice analyst estimates being slightly skewed on the negative side. However, in the last four quarters, TiVo has consistently matched or surpassed analyst estimates by an average of 10.05% and for the present quarter we expect the phenomenon to continue.

Prior-Quarter Recap

TiVo reported fourth quarter 2012 earnings of 6 cents per share, which was sharply higher than the Zacks Consensus Estimate of a loss of 25 cents as well as the year-ago loss of 30 cents. The better-than-expected result was driven by higher revenue (up 19.1% year over year to $66.5 million), which in turn was boosted by strong subscriber growth and licensing revenue growth resulting from the AT&T Inc. (T) settlement.

For further details please read: TiVo Sees Profit on More Users

Current Quarter Expectations

For the first quarter of 2013, TiVo expects service and technology revenues in the range of $53 million to $55 million. TiVo expects net loss in the range of ($20.0) million to ($18.0) million and an adjusted EBITDA loss in the range of ($10.0) million to ($8.0) million.

For the first quarter, TiVo expects R&D expense to remain flat sequentially. But for the full year, R&D is expected to decline on a year-over-year basis. TiVo expects litigation expenses to decrease significantly for the first quarter from $12.0 million in the fourth quarter. TiVo expects to spend much less in litigation costs compared with fiscal 2012.

TiVo expects adjusted EBITDA to significantly benefit from higher licensing revenue and subscriber fees. Management expects adjusted EBITDA to breakeven for full year 2013.

Estimate Revision Trend

Over the past 30 days, out of the 12 analysts covering the stock, we notice one negative estimate revision for the quarter. However, the Zacks Consensus Estimate for the first quarter is been pinned at a loss of 15 cents per share over the same period of time.

Analysts expect TiVo to benefit from the increase in the subscriber count, which would be reflected in the company’s top line. Moreover, the company has been successfully monetizing its intellectual property by defending its patents that have yielded a recurring revenue stream.

Our Take

We remain optimistic about TiVo’s long-term growth potential due to new partnerships, product launches, international expansion and declining legal hassles. However, rising subscription acquisition costs and higher R&D expenses 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 long-term Neutral recommendation on TiVo. Currently, TiVo has a Zacks #3 Rank, which implies a ‘Hold’ rating in the short term.

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