Why Rovi Shares Got Wrecked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rovi have lost nearly 12% today as a result of the company's disappointing earnings report. Both top and bottom lines missed estimates, and the company is now contemplating divestitures to keep itself afloat.

So what: Rovi's third-quarter earnings report showed a 13% year-over-year decline in revenue to $143 million, which was weaker than the $152 million Wall Street had modeled. Rovi's GAAP net loss was $0.12 per share, which is slightly better than the $0.13 GAAP EPS loss from the year-ago quarter, but adjusted earnings of $0.41 per share were a big swing-and-a-miss at the $0.48 analyst target.

Going forward, Rovi now expects annual revenue of $585 million to $615 million, which barely reaches the $613.5 million consensus on the high end. It's the second consecutive guidance downgrade for this fiscal year. Rovi's full-year EPS guidance of $1.70 to $2.00 is slightly better, as Wall Street is looking for $1.94 per share, but it is also a downgrade from earlier guidance. As a result of this weakness, Rovi is now actively investigating the sale of its DivX video codec business.

Now what: Two consecutive guidance downgrades and a divestiture on the horizon? This doesn't exactly paint a picture of health for Rovi. If you're interested in possible deep-value turnaround stories, you may want to dig deeper, but this company's momentum appears to be moving in the wrong direction. I'd stay on the sidelines until more clarity emerges on the DivX sale, at least.

Want more news and updates? Add Rovi to your watchlist now.

Invest in real growth
Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.

The article Why Rovi Shares Got Wrecked originally appeared on Fool.com.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story