TiVo Inc. (NASDAQ:TIVO) shares are at an inflection point and on the cusp of achieving adjusted EBITDA profitability in fiscal 2014, driven by significant growth in MSO (multi-system operator) subscribers and service and technology revenues.
Alviso, California-based TiVo offers the TiVo service and TiVo DVRs directly to consumers online at www.tivo.com and through third-party retailers. TiVo also distributes its technology and services through solutions tailored for cable, satellite, and broadcasting companies.
TiVo is a solid play in the evolving advanced television landscape. The company's MSO segment is growing at a rapid clip as more service providers embrace the company's user interface (UI) products and services integrating linear programming with internet-distributed content.
[Related -TiVo Inc. (TIVO): Attractive Investment Opportunity With Key Catalyst Ahead]
The new Roamio line of DVRs offers a compelling video viewing and streaming experience, integrating linear content with internet content that may help stem TiVo-owned losses over the next few quarters and possibly grow TiVo-owned net subscribers sometime next year.
10 Best Undervalued Stocks To Invest In Right Now
BMO Capital Markets analyst Edward Williams believes the company has roughly penetrated a quarter of its actively engaged MSO base and can double or triple that rate in the years ahead with potential upside from new deals.
The company is on-target to hit a significant milestone in fiscal 2014, achieving adjusted EBITDA profitability for the first time since it introduced the DVR in 1999.
[Related -Tivo Inc.'s (TIVO): CEO's Insider Buy Signal Change Of Heart]
The company remains focused on growing subscribers, more so than ever now, without a legal overhang. All key litigation cases have been settled, with $1.6 billion awarded to TiVo from Dish, AT&T, Verizon, Motorola, and Cisco. With $1.2 billion in collected cash, the company is scheduled to receive approximately $378 million through 2019.
TiVo has deals with Tier 2 operators that cover roughly half of that segment's subscriber base with an opportunity for further penetration. Looking outside the US, Europe and Latin America remain key targets – the company recently beefed up its sales efforts with dedicated bodies addressing both regions.
Williams said the company's success with Virgin and Ono, coupled with the recent Com Hem IPTV deployment, has raised the company's profile among service providers looking for a compelling user interface blending traditional linear programming with over-the-top content.
MSO partnerships remain the core growth driver for the company – both increased penetration of existing customers, as well as new partnerships. The sweet spot for TiVo remains operators with fewer than 5 million subscribers as they lack the scale to develop their own solution internally.
Current customers include Virgin Media, ONO, Suddenlink, RCN, Grande, Mediacom, GCI, Midcontinent, Com Hem, and Atlantic Broadband. The company recently posted its strongest quarter of cable subscription additions to date (295,000), with the highest overall net adds in nearly eight years (274,000).
These positive trends would continue over the next several quarters as momentum builds for MSO rollouts. TiVo currently has 2.9 million MSO subscribers and 960,000 TiVo-owned subscribers.
Among the deployments, Com Hem, the largest operator in Sweden, recently began the rollout of the TiVo IPTV solution and marketing across its entire footprint. Virgin Media and ONO in Spain continue to deploy TiVo rapidly – nearly half of Virgin's subscribers and a third of Ono's subscribers now have TiVo service. The two service operators are also the first in the industry to offer subscribers access to Netflix on a Pay-TV platform with TiVo.
Williams noted that the key for TiVo is to expand its partnerships with MSOs beyond the DVR to a cloud-based UI. As MSOs increasingly look to enhance the television viewing experience for their subscriber base, TiVo should leverage its strong user interface to improve its subscriber base, enhance its revenue growth, and improve the underlying profitability of the business.
TiVo has a compelling valuation. At current prices (including the conversion of debt into equity and the recent settlement), TiVo has an enterprise value of approximately $674 million. In addition, the company is scheduled to collect $378 million from current licensing agreements, suggesting that the core business is getting minimally valued.
At these levels, with this valuation, Williams believes that TiVo could be an attractive acquisition target for larger companies looking to expand their presence on the TV.
On the balance sheet front, the company now has more than $1 billion in cash with approximately $378 million to be collected through 2018 based on existing licensing agreements.
Given the company's immense cash balance and current share price levels, it could repurchase a significant portion of outstanding shares as it continues to evaluate its capital allocation strategy. Approximately $100 million remains on the current $200 million buyback authorization.
Shares of TIVO currently trade at approximately 2.0 times its 2014 EV/Sales estimate, below a historical mean of 4.4 times. They traded between $10.47 and $14.25 during the past 52-weeks.
No comments:
Post a Comment