TiVo Inc. (TIVO) recently acquired Durham-based cloud service firm, Digitalsmiths Corp for a sum of $135.0 million.
Digitalsmiths is a personalized video search company. Currently, it works with 46 blue-chip U.S. and international service providers including seven of the top 10 Pay-TV operators in the United States, content providers and consumer electronics manufacturers.
Digitalsmiths has a service that allows Pay-TV operators to integrate search, recommendations and browsing features across several platforms, including the likes of Apple’s (AAPL) iOS and Google’s (GOOG) Android. Moreover, its transaction volume has increased significantly to 150 million in December from 90 million in July.
This acquisition will 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 Digitalsmiths’ current customer base as well as through addition of new customers.
Both TiVo and Digitalsmiths 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.
TiVo continues to innovate and its strong product pipeline is a major positive going forward. The resolution of patent litigation issues removes a major overhang on the company.
We believe that TiVo has significant growth opportunities in Western Europe and Latin America, given its partnerships with local providers. TiVo’s strong balance sheet will also enable the company to pursue strategic acquisitions. Its aggressive share buyback program will boost growth in the near term.
However, increasing competition from the likes of DirecTV (DTV) and Apple remains a major overhang. Additionally, higher investments on research and product developments will keep margins under pressure in the near term.
Currently, TiVo has a Zacks Rank #3 (Hold).
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