TiVo Rises on Patent Bets
TiVo stock wallowed after the firm reported a wider-than-expected second quarter loss of $17.7 million. It's risen sharply since then on the possibility of a nine-digit windfall from the EchoStar case. Oral arguments in the EchoStar appeal began yesterday.
TiVo shares were up 29 cents (4.1%) to $7.38 each in mid-day trading Friday.
Citi Investment Research analyst Tony Wible reportedly believes a TiVo victory, coupled with subsequent licensing deals with EchoStar and others, could send those shares beyond the $10 mark.
But Brian Coyne, an analyst with Friedman Billings Ramsey & Co. Inc. , speculated in a research note that TiVo's "patent opportunity" is limited to the trial with EchoStar, which makes its own DVR software and is considering a spinoff of its technology division. (See EchoStar Mulls Spinoff.)
"We firmly believe a TiVo victory here will not lead to new settlements or payments from other operators or vendors," Coyne wrote. He maintained a Market Perform rating and $6 target on TiVo shares.
A TiVo win, Coyne estimates, could fetch $90 million in damages from the results of the original 2006 judgment tied to TiVo's "time warp" patent, plus about $100 million from royalties on about 3 million deployed EchoStar DVRs subject to the alleged infringement. The royalty figure is based on an assumption of 50 cents per DVR, per month, and a 5x enterprise value multiple.
Coyne also estimates that the appeals court decision could be six months away, which could cause investor interest in the case to wane.
He pointed to other "more constructive" long-term prospects for TiVo, including international distribution deals, its TiVo-To-Go services, and multi-room features for its high-def boxes. Last month, Cablevision S.A. de C.V. of Mexico launched a Spanish-language version of the TiVo standalone standard-def DVR. (See TiVo Goes South (of the Border) .)
It appears that at least three other big operators -- DirecTV Group Inc. (NYSE: DTV), Comcast Corp. (Nasdaq: CMCSA, CMCSK), and Cox Communications Inc. -- should be fairly insulated from future litigation with TiVo, as they all have DVR licensing deals in place.
Among that group, Comcast is nearing a New England deployment of Motorola Inc. (NYSE: MOT) set-tops outfitted with TiVo software, and is in the process of porting TiVo to the Scientific Atlanta set-top platform. (See Comcast Funds TiVo App Expansion.)
— Jeff Baumgartner, Site Editor, Cable Digital News