Rob Sanderson: Why I'm Cutting My Tivo Price Target

• TiVo Inc. TIVO shares are up 11 percent in the last three months, even after hitting a low of $8.48 on October 1.
• MKM Partners’ Rob Sanderson maintained a Buy rating on the company, while reducing the price target from $16 to $12.50.
• Although the company posted strong results, this may not be enough to trigger investor interest, Sanderson said.

Tivo reported robust quarterly results that were in-line to better-than-expected. The company benefited from strong subscriber additions.

Tivo posted record net MSO subscriber additions of 418k, handsomely beating the consensus estimate of around 310k. “This is important as some of TIVO's largest operators are well above 50% penetration and the middle-tier is just beginning to contribute meaningful subs,” analyst Rob Sanderson wrote.

TIVO-owned, or retail, subs also beat expectation, with 11k of net new additions, versus consensus of a 3k loss. This represented the fifth consecutive quarter of acceleration in gross subscriber additions.

In the report MKM Partners noted, “The Media services line (driven largely by the DigitalSmiths acquisition) has seen a disappointing ramp vs. expectations, up only 5% sequentially…Professional services revenue is lumpy, booked at integration milestones from new operators. This is expected to decline next quarter, the primary reason for a flattish revenue guide.”

Although there is upside and a strong balance sheet limits downside, the company has been “unable to land follow-on wins, is increasing its focus on the retail opportunity and reengaging in IP litigation,” the analyst commented, while adding that the CEO transition suggests that nothing much will change in the near term.