Even After Declines, TiVo Stock Still Gets a Red 'Thumbs Down'

Shares of once-revolutionary television tech company TiVo have been punished this year. But they are still too pricey, especially given that the revolution is passing it by.
By Richard Saintvilus ,

With its shares down some 30% in past twelve months, and 10% lower than they were three years, TiVo (TIVO) - Get Report has been a  disappointment for investors who bet on the company's ability to revolutionize the television-watching experience. Ahead of its third-quarter fiscal 2016 earnings results Tuesday, investors may be wondering if it's time to buy, especially after the stock has fallen 15% just in the past six months? However, with estimates for the just-ended quarter declining, investors would be better served to stay away -- things can still get worse.

For the quarter that ended in October, analysts' average expectation is for TiVo's earnings to be 8 cents a share on revenue of $101.18 million, compared to the year-ago quarter when the company earned 6 cents a share on revenue of $88.06 million. For the full year ending January 2016, earnings are projected to climb 18% to 33 cents a share, while revenue of $395 million would yield an increase of about 12%.

Sure, while TiVo shares -- at around $9 -- are 21% cheaper today than when we last discussed TiVo's prospects in March, nothing has changed fundamentally to alter our opinion of the Alviso, Calif.-based company. While it's still possible for it to grow its television subscriber base, its services no longer "game-changing."

Not only have on-demand TV services from cable companies like Comcast (CMCSA) - Get Report and streamers like Netflix (NFLX) - Get Report taken the wind out of TiVo's growth, those services are relatively cheaper. And now that Apple (AAPL) - Get Report -- with its revamped Apple TV product -- wants a piece of the TV market, TiVo shareholders must reconsider where TiVo's TV transformation is finally going to come from. That transformation is now seemingly everywhere.

After accounting for those competitive factors, which have punished TiVo's stock, the shares are not at attractive as their reduced price might indicate. Despite TiVo shares trading at near 52-week lows, the stock is still priced at a P/E of 35 -- fourteen points higher than the S&P 500 (SPX) index. Iif TIVO shares traded on par with the rest of the market, they would be valued today at around $6, not $9.

All told, the stock's valuation should be closely watched, especially with second-quarter earnings results revealing flat sequential multi-system operator growth, while TiVo-owned subscribers declined by about 3,000 to 941,000. With the company's bread-and-butter business showing signs of weakness, avoiding TiVo shares is still the smart play.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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