Barclays Cuts TiVo's Price Target By 35%

• TiVo Inc. TIVO shares have headed south through 2015, and are down 25 percent year-to-date.
• Barclays’ Kannan Venkateshwar maintained an Equal Weight rating on the company, while reducing the price target from $13 to $8.
• The company has been struggling to scale and is unlikely to achieve operating breakeven anytime soon, Venkateshwar stated.

Although TiVo has been a technology pioneer, it has not really been successful in scaling its business either on a retail or wholesale basis, analyst Kannan Venkateshwar pointed out.

The company has inked multiple wholesale deals over the last 3-4 years, with the most prominent of these coming from international markets. This has resulted in an acceleration in subscriber growth to a 41 percent CAGR over the last 3 years, Venkateshwar said.

Considering the current pipeline of deals, TiVo could generate another 19 percent subscriber grow over the next three years, the analyst believes. “If this expectation is borne out, the company could see its core business (ex litigation) break even on an EBITDA basis for the first time since it went public 16 years ago.”

Venkateshwar added, however, that even if TiVo achieves this milestone, the struggle there has been to reach this point cannot be ignored.

While TiVo’s MSO business should continue to grow, the sustainability of growth in the company’s FCF and EBITDA would also depend on cost discipline. “Also, TIVO could benefit from some optionality arising out of its data and back end support for MSOs through newly acquired businesses,” the Barclays report noted.

TiVo’s IP lawsuit against Samsung could add some option value. Moreover, the company’s IP portfolio may be of interest to technology companies looking to enter the TV ecosystem.

“Overall, while we recognize these potential sources of value, given their idiosyncratic nature, it is difficult to incorporate into valuation. We reduce our price target to $8 from $13 based on our revised estimate of TIVO's core business as well as the diminishing stream of royalties from past litigation,” Venkateshwar commented.