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TiVo's Partnerships & International Expansion on Track, Risks Remain

Zacks Equity Research

On Jul 11, 2014, we issued an updated research report on TiVo Inc. (TIVO).

TiVo primarily develops software and technology and provides advertising solutions for the media industry and audience measurement services. The company’s innovative product pipeline is a major growth catalyst, in our view. The newly-launched TiVo Roamio has gained significant traction due to its recently added ability to connect to the company’s mobile apps and be able to stream and download live and recorded television program. To improve customer engagement, the company also launched “What to Watch Now” app for Apple’s (AAPL) iPad owners. We believe that the company’s innovative product pipeline will drive significant top-line growth over the long term.

Another potential revenue stream for TiVo is advertising. The acquisition of advertising analytics company TRA Inc. will help the company to focus on growing its television ad analytics business, going forward. Moreover, the company’s existing partnerships with NBC and CBS and six of the world's largest advertising companies (WPP, IPG, Publicis, Havas, Carat and Omnicom Media Group) will boost ad revenues and trigger a surge in the demand for TiVo technology.

Additionally, TiVo has significant growth opportunities in Western Europe and Latin America, given its partnerships with local providers. The company has been able to expand its services in the international markets of Australia, Mexico, New Zealand, Spain, Sweden, and Taiwan through partnerships with local service providers. We believe that the company will continue to pursue distribution alliances as well as technology partnerships both domestically and on the international front to expand market share, going forward.

Separately, TiVo has made a series of legal settlements with Arris, DISH, EchoStar Corp, AT&T, Microsoft, Verizon, Cisco, Time Warner Cable and Google (GOOGL), which have opened up a recurring revenue stream for the company for the next 5-6 years. Through these settlements, the company has not only ensured a recurring revenue stream till 2018 ($1.6 billion), but also succeeded in lowering apprehensions about its patent rights.

However, intense competition is eroding TiVo’s subscriber base. The company faces increasing competition from the likes of Dish Network (DISH) and Cablevision Systems Corp. which seems to be the primary headwind in the near term.

Going forward, TiVo faces supplier concentration risk as it relies on sole suppliers for a number of key components needed for the DVRs and the TiVo service. This concentration could lead to significant delay in launching new products, an increase in expenses or disruption in product or service availability at TiVo.

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

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