NEW YORK ( TheStreet) -- If you're a current Rovi ( ROVI) investor, Tuesday's earnings warning was a frustrating spectacle filled with disappointment from start to finish. Rovi is expected to release actual earnings Aug. 2 for the quarter ended June 30.Rovi is an entertainment technology company specializing in the management of entertainment content. ROVI data by YCharts
Rovi lost about 23% of its marketcap in afterhours trading on Tuesday. The loss in market cap is the result of lower revenue, earnings and contracts for the quarter and for 2012. The analysts' consensus estimate is currently 42 cents a share, an improvement of 1 cent (2.4%) from 41 cents during the same period last year. Rovi missed in the last four out of four quarterly estimates. The next report will make it five for five. ROVI Revenue Growth data by YCharts
The company expects to miss revenue by $21 million for the second quarter to come in near $158 million vs. the previous guidance of $179 million. Continuing operation losses are now expected to be between 15 and 18 cents per share, compared to 6 cents for the same period last year. (Rovi's are not the only shares falling, read my Facebook and Zynga article --
... We were negatively impacted by timing issues in our licensing business -- specifically, delays in signing certain guidance patent licenses. The majority of the second quarter revenue shortfall, and approximately half of the reduction in our expectations for fiscal 2012, are attributable to these timing delays. . . . In some instances, while not our preference, this may involve going to court against parties that we believe are in clear violation of our guidance patents. . . . Another key point is that we believe our delayed deals, once signed, will include catch-up payments to make Rovi whole for the pre-license period of use, so we do not anticipate ultimately losing revenue as a result of these delays -- it's just pushed out.What this means to me is that Rovi and potential licensees are so far apart in intellectual property negotiations that Rovi may have to litigate. Litigation is always filled with peril and trials with juries are crapshoots at best. Rovi may indeed collect back royalties; however, payments not received should be heavily discounted (as the market is clearly doing). Insiders sold over 110,000 shares, or about 80% of their holdings in the last six months. Some will say there are many reasons why insiders sell (stock options, etc..), but the bottom line is the motivation to sell or buy is nearly the same. You don't sell a stock you think is moving higher in price regardless of the source. Insiders own less than 1% of their compensation in stock. This may or may not indicate management believes in the company; you can make up your own mind. Nuance Communications ( NUAN) and Rovi have come together to produce Dragon TV and Magic Remote, a method of using voice commands instead of a remote to control a TV. TheStreet's Timothy Collins
Nuance is the maker of Dragon Naturally Speaking, a voice-to-text program I use often and really like. If Nuance and Rovi can do for TV what Dragon Naturally Speaking has done for typing on a computer, the days of searching for a hopelessly lost remote may be over. Plans for Nuance products include the ability for viewers to answer trivia questions and for the TV to answer questions about programming, for example, "who plays Jim on 'The Office'?" I look forward to the day of no longer needing remotes. Nuance reports earnings on Aug. 9, after the closing bell. The technical chart pattern is bearish for Nuance with the major moving averages moving lower. Rovi has partnered with other technology companies. Rovi technology powers video downloads for Best Buy ( BBY), another company whose stock is under pressure lately. Best Buy is trading a little more than a dollar above the 52-week low of $17.53. BBY data by YCharts
If Best Buy can turn over a new leaf and move from such a large dependence on bricks and mortar, and increase online sales, it wouldn't hurt Rovi's ability to make a buck. Unfortunately for Rovi, Best Buy has its own problems right now. Best Buy stores carry products with Rovi technology inside. Best Buy is also shrinking the size of their stores and closing others. (Read my
Pandora also continued to sell off for a month. If you're on the fence with Rovi or already reached your stop loss, know that the odds expect greater pain for shareholders before building again. Pandora, like Rovi, will take at least six months to trade again at pre-gap pricing, if the next two reports are favorably received by investors. I love listening to Pandora, but I am not ready to invest just yet. What's the best play with Rovi? There should be a very attractive trade coming up Friday or Monday. Near the end of the day if still trading lower, sell out of the money puts. Fear of continued losses tends to push portfolio insurance prices up dramatically. It's not one to get greedy with; hold on for a few days and as the implied volatility falls (hopefully with a nice dead cat bounce), exit out with a quick hit and run for profits. Otherwise for longer term investors, the best play is to wait until we are closer to the next earnings release for an entry. At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.