Rovi's (ROVI) Agreement with Sony Considerably Reduces Risk in 2015 - B. Riley
Rovi Corp. (NASDAQ: ROVI) shares moved higher by another 12% on Monday following the announced renewal of its license agreement with Sony Corporation. The main reason behind ROVI’s Q3 revenue/EPS miss in late October was that Sony had gone out of license at the end of Q2 and had not renewed the license during Q3, analyst Eric Wold at B. Riley noted. However, management was optimistic based on its renewal discussions with Sony that the license would be renewed during Q4, and therefore, 2015 guidance was left unchanged even with the Q3 miss. A Q4 renewal would generate a make-good payment from Sony during the quarter to eliminate the Q3 revenue/EPS shortfall in full-year results.
Even thoush this announcement should not be considered an incremental license win on its own or something to boost expectations, they view it as a positive for three reasons: 1) the signing during Q4 essentially eliminates any risk of a Q4 miss due to the renewal discussions with Sony being pushed further into 2016; 2) it eliminates any potential risk from this license renewal on early 2016 expectations (should it have escalated into a longer discussion or litigation); and 3) it is likely to signal continued pricing power strength from ROVI after both the Charter and AT&T licenses were renewed this year without any pricing pressures.
ROVI shares are now up 56% since the AT&T/DirecTV license renewal was announced on 12/23 implying that investors are increasingly optimistic that:
1) the remaining two “Big 4” licenses with Comcast and EchoStar will be renewed on/before their expiration date in March
2) the adverse litigation news from a non-licensee can be separated from the value seen by existing licensees
3) all of these events help to validate ROVI’s IP position within both traditional and emerging media segments.
The firm maintained a Buy rating and price target of $23 on ROVI.
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Shares of Rovi Corp. closed at $17.71 yesterday.