Rovi Corp.'s shares dropped Monday after a Pacific Crest Securities analyst downgraded his rating on the company, citing concerns about limited growth potential.
THE SPARK: Analyst Andy Hargreaves but the stock's rating to "Underperform" from "Sector Perform."
THE BIG PICTURE: Rovi, based in Santa Clara, Calif., holds more than 5,000 issued or pending patents, many of which have to do with interactive TV guides, listings data and technology used to protect digital video content. It makes most of its revenue from licensing its technology to consumer electronics manufacturers or video providers.
THE ANALYSIS: Hargreaves wrote that he believes that the value of the company's patents is diminishing due to some recent settlements, negative court rulings and a shift by consumers and service providers to online and on-demand video. He also said that President Barack Obama is "moving against the aggressive assertion of software patents," which he sees as a long-term risk to Rovi's profitability.
A representative for Rovi was not immediately available to comment.
Hargreaves cut his earnings per share and revenue estimates for this year and next to below the average market estimate. The analyst expects earnings to drop 9 percent through 2014 from last year, while Wall Street expects profit to grow 8.5 percent, according to analysts polled by FactSet.
SHARE ACTION: Rovi's shares fell 96 cents, or 4.1 percent, to $22.63 by Monday afternoon, amid a broader market slump.
Its stock took a sharp dive in July but had been climbing since then, peaking at a 52-week high of $26.55 on June 7.