TiVo Still Chasing a Strategic Solution to an Existential Problem

In March of next year, TiVo Corp. (NASDAQ: TIVO) will celebrate the 20th-anniversary shipment of its first Tivo digital video recorder. Since then a few things have changed.

Tivo reported quarterly results this morning that met revenue expectations and were about 10 cents below earnings per share estimates of $0.27. But the main issue on the company’s mind — and the minds of its investors — was the progress of the review of strategic alternatives that Tivo launched in the first quarter.

The answer, according to the interim president and CEO, Raghu Rau, is that Tivo continues to make progress and has “narrowed our focus in terms of the strategic alternatives” the company is evaluating.

Investors were no doubt relieved to hear that Tivo, “at this time,” does not think spending money on a significant acquisition is the best way to deliver shareholder value. By itself, this revelation may account for today’s share price gain. Tivo reported some $297 million in cash, cash equivalents and short-term marketable securities.

The company also said it had “reaffirmed” that Tivo has valuable assets and strong market positions in both product and intellectual property (IP) businesses, and that it plans to continue developing new solutions that deliver customer value. Tivo already has begun de-emphasizing its hardware products and reported a drop in hardware product revenue of $6.3 million in the quarter.

The third notable issue to surface from its strategic review is that “potential parties” recognize the value of Tivo’s product and IP businesses. The company’s global installed base of 22 million subscribers is a “strategic asset” as the company moves forward. Strategic opportunities are also said to exist in the IP business that the company believes will enable it to grow in both existing and nearby markets.

None of these assets and products has so far drawn a publicly acknowledged bid from a potential buyer. But as more consumers abandon pay-TV bundles in favor of streaming services that enable consumers to watch programming when — and often, where — they want, the company’s subscriber base is likely to slip, and the value of the company will depend more and more on its IP.

Tivo’s shares traded up about 3.1% in the noon hour Thursday, at $12.52 in a 52-week range of $11.30 to $20.18. The consensus 12-month price target on the stock is $23.50 based on estimates from four analysts. The lowest analyst target is $19 and the forward price-to-earnings ratio is 10.02.

Whether Tivo can find a buyer before it has to reduce or end its current dividend yield of 6.29% is probably the existential question for the company and its investors.

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