Thursday, July 15, 2010

Bookkeeping: Beginning Rovi (ROVI)


That's what I said when I saw this name show up on one of my screens.  I'm quite familiar with probably 1000+ stocks but Rovi?  As a stock researcher at heart (although that art has been made obsolete by HAL9000) I wondered how a $4B+ market cap company in the "tech" space eluded my notice.  Then I did some digging.... and some of you old school vets out there from the late 90s/early 00s will recognize it.  It used to be called Macrovision.  Which absorbed Gemstar (infamous for VCR plus technology and the first on screen TV guides).  But with the emergence of an internet arm this is a more interesting company than it was 6-7 years ago.

Let's start with the technicals because that is what caught my eye.  Rovi (ROVI) has just emerged from a 4 month hibernation; a quite nice base between $35 and $40.  I like long bases because it usually leads to big moves; at least in a benign market.  The stock finally cleared this range when the S&P 500 burst off that 1010 low two weeks ago.  So the story is easy from here; either this is the beginning of a potentially serious breakout or if the market breaks down the stock will soon fall back into the $35 to $40 range and the trade is over from a "breakout" perspective.

[click to enlarge]

On a fundamental basis, Investors Business Daily does its normal excellent "Company XYZ for Dummies" in this story from mid June:  Tech Company Guides the Way as Entertainment Goes Digital
  • .... radio, movies, television, DVD players, game consoles, desktops, laptops, MP3s, handhelds, iPads, e-readers.  There are so many choices now that some companies make their living simply helping folks connect their electronic devices to TV shows, movies and music. Rovi (ROVI) is one of those companies.
  • Rovi provides digital entertainment technology for the discovery and management of entertainment content. Its lineup includes home network connection, content protection and media recognition technologiesIt also provides extensive metadata on movies, music, games, television and books.
  • Cable firms and other carriers use its program-guide technology, while from manufacturers of consumer electronics license its technology.
  • That technology is under heavy guard. Rovi has 4,400 issued or pending patents worldwide.
  • Just over half the company's revenue comes from service providers. Most of the rest comes equipment makers.
  • "The conversion from analog to digital is driving most of Rovi's growth — that and the increased usage of rich metadata," said Andy Hargreaves, analyst at Pacific Growth Equities. "Rather than having just textual listings, a lot of service providers are using pictures and videos to show content. Rovi is one of the leaders in that business."

Much like Tibco Software (TIBX) this is a solid growth story if not spectacular; roughly 15-20% annual.  On a full year forward basis for 2010, it's a decent valuation at 21x.  Most importantly it is not a name that is a hedge fund plaything full of 8% fluctuations due to "risk on", "risk off" decisions made each day by the bipolar PhD community and their computers.  In that sense its like Polypore (PPO) ...sort of doing its own thing... like the good old days when individual metrics mattered.


Last earnings report was in early May - found here.  Hence we should expect the next in 3 weeks or so.
  •  Rovi Corporation (Nasdaq:ROVI - News) announced today, first quarter 2010 revenues of $130.1 million, compared to $111.2 million for the first quarter of 2009. 
  • On a non-GAAP Adjusted Pro Forma basis, Adjusted Pro Forma Income was $48.1 million in the first quarter of 2010, compared to $31.2 million in the first quarter of 2009. Adjusted Pro Forma Income Per Common Share for the first quarter of 2010 was $0.45, compared to $0.31 for the first quarter of 2009.

I've begun a 1% exposure in the name only because I have never owned "Rovi" and like to get my feet wet slowly with new names. (I played Gemstar back in the day, but we're probably talking 10 years ago).  If the stock can break over intraday highs of the past 2 days, I'll most likely add more.  Gun to head, if the S&P 500 can just stay steady and not fall over, this is the type of chart you salivate for.  However, if S&P 1100 is the best we can do, and we're facing the next selloff in the coming weeks, Rovi will surely be taken down as another hostage to the greater market.

Remember, all individual company metrics no longer mean a thing in the new age stock market (EFT + HFT = GLEE) - it's either "risk on" or "risk off" with no memory from day to day; every stock is either Ultra S&P 500 ETF or QQQQ.  Everything else is just details for humans who cling to the past, and still believe they add value. (hand raised)

Rovi Corporation provides digital entertainment technology solutions for the discovery and management of entertainment content. It offers guidance, home network connection, content protection, and media recognition technologies, as well as extensive metadata on movies, music, games, television, and books.

Long all equities mentioned in fund; no personal position

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