Why Rovi Corporation Fell Another 13% Today

By Markets Fool.com

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.

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What: Shares of Rovi took another deep dive on Friday. Shares fell as much as 13.2% as the company reported decent second-quarter earnings but weak sales, and then offered disappointing guidance for the next quarter.

So what: In the second quarter, Rovi saw sales falling 7% year-over-year to land at $127.8 million. Analysts were expecting roughly $131 million. The maker of software and processes for on-screen program guides and content library management did better on the bottom line, where adjusted earnings fell 12% to $0.38 per diluted share but still met analyst expectations.

Looking ahead, Rovi now expects full-year sales in the $515 million range and 2015 earnings near $1.47 per diluted share. Both numbers fall far short of current analyst projections, which point to $547 million and $1.70 per share, respectively.

Now what: Rovi's business model, which mostly relies on licensing its software and patent portfolio to cable companies and electronics manufacturers, is falling apart at the seams. Many of the company's most important patents are actually not innovations at all, according to the game-changing Alice Supreme Court ruling as well as several judges in charge of Rovi's patent litigation processes. In many cases, these Rovi claims consist of perfectly normal business methods, only "done on a computer."

This is not the place for a thorough discussion of Rovi's wobbly patent sales -- I've already addressed that elsewhere -- but the company is already losing revenues from its disappointing court outcomes. Whether management admits it or not, licensees are keeping close tabs on legal proceedings, and are less likely to sign a high-value deal with every new setback.

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Image source: Rovi.

One such decision arrived two weeks ago, sending Rovi shares 24% lower in a single day. Rovi's management claimed that this case won't hurt the company's patent portfolio at all.

According to Samir Armaly, Rovi's head of intellectual property and licensing, Rovi only needs to "educate" its clients about the proper meaning of recent court losses. "This includes our ongoing Big 4 negotiations," he said in a conference call with analysts.

I'm sorry, but there's enough spin on that argument to confuse Novak Djokovic.

Including Friday's steep drop, Rovi share prices have now lost half their value in 2015, including a 30% fall in the last month alone. Buyer beware.

The article Why Rovi Corporation Fell Another 13% Today originally appeared on Fool.com.

Anders Bylund 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.