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TiVo Downgraded to Strong Sell

Zacks Equity Research

On Mar 1, 2014, Zacks Investment Research downgraded TiVo Inc. (TIVO) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

TiVo reported a mixed fourth quarter of fiscal 2014. Although earnings of 5 cents per share beat the Zacks Consensus Estimate by a penny, revenues of $106.3 million were well below the Zacks Consensus Estimate of $111.0 million.

During the quarter, the company completed the acquisition of cloud-based content discovery and recommendation service provider, Digitalsmiths. Owing to the gains from additional subscriptions, TiVo management believes that it is on track to exceed adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) of $100.0 million on an annual basis in 2015.  

The company also believes that the highly efficient nature of Digitalsmiths software will drive margins, going forward, as well as contribute significantly to TiVo’s overall adjusted EBITDA in fiscal 2016.

Although we believe TiVo has significant growth opportunities in Western Europe and Latin America, given its partnerships with local providers, increasing competition from satellite and cable companies is a significant headwind.

We believe TiVo should to focus on increasing its subscriber base, going forward. In order to do so, the company needs to invest in product development and sales & marketing costs in the near term. We believe rising operating expenses will continue to negatively impact its profitability in the near term.

Estimate Revisions

The Zacks Consensus Estimate for the first quarter of 2015 has declined 28.6% (2 cents) to 5 cents over the last 7 days.

The Zacks Consensus Estimate for 2015 decreased 12.5% (4 cents) to 28 cents per share over the last 7 days. The Zacks Consensus Estimate for 2016 dropped 8.0% (4 cents) to 46 cents per share over the same period.

Other Stocks to Consider

Some better-ranked stocks in the technology sector include Micron Technology (MU), Facebook (FB) and Splunk Inc. (SPLK). All these stocks have a Zacks Rank #2 (Buy).

Read the Full Research Report on MU
Read the Full Research Report on TIVO
Read the Full Research Report on FB
Read the Full Research Report on SPLK

Zacks Investment Research