TiVo Inc. TIVO, a provider of software and technology for set-top boxes, smartphones and tablets, recently announced the acquisition of pay TV software solutions provider, Cubiware. Following the takeover, management expects an increase in TiVo’s adjusted EBITDA for the current fiscal year.
Cubiware is a provider of software solutions for digital TV devices and systems. Currently, it works with international service providers including pay TV operators in Europe, the Americas, Asia and Africa and has roughly 12 million pay TV subscribers. This means that the acquisition of Cubiware will expand TiVo's international existence in more than 25 countries and will enable it to offer cost effective solutions for Pay-TV operators worldwide.
The acquisition would be beneficial for TiVo as the company would provide information to its clients about the target audience. Eventually, this would improve TiVo’s chances of boosting ad revenues.
Also, it would enable TiVo to commercialize its cloud-based services and technologies to operators in an extremely cost effective way, either independently or in conjunction with its popular user interface. TiVo also expects rapid growth from increased penetration within Cubiware's current customer base as well as through addition of new customers.
Moreover, Cubiware’s incremental revenues would positively impact TiVo in the long run. Cubiware’s clientele includes approximately 40 brand clients like Columbus Communications and Cablemas in Latin America to name a few.
Both TiVo and Cubiware are focused on improving the viewing experience and believe that cloud or service are the most important mediums through which this goal can be achieved.
Our Take
We are optimistic about TiVo’s long-term growth potential due to new partnerships, product launches, international expansion and accretive acquisitions. We remain optimistic about its future prospects due to sustained focus on product innovations and subscriber acquisition. Further, a higher number of distribution deals with cable companies will support TiVo’s expansion plans and strengthen its customer base, which in turn will boost revenues.
TiVo recently reported better-than-expected results for the first quarter of fiscal 2016. Also, year-over-year comparisons on both counts were favorable. Year-over-year growth was primarily driven by higher service and technology revenues (81% of revenues), which rose 7.5% to $92.4 million.
We also believe that TiVo’s strong balance sheet will enable it to pursue strategic acquisitions and aggressive share buyback programs, thereby boosting near-term growth.
However, increasing competition from the likes of Dish Network DISH and Cablevision Systems Corporation CVC seems to be the primary headwind in the near term.
Currently, TiVo has a Zacks Rank #4 (Sell). A better-ranked stock in the technology sector is Cirrus Logic Inc. CRUS, sporting a Zacks Rank #1 (Strong Buy).
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