Why Is TiVo Dropping in 2012?

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Shares of digital media veteran TiVo (Nasdaq: TIVO  ) started out strong in 2012, soaring as much as 36% in the year's first six weeks. But the strong gains didn't last. TiVo's stock has taken a 36% haircut from those early highs, and the total return so far in 2012 is a negative 12.6%.

How did TiVo get here? It's a tale of missed expectations, large lawyer bills, and a failure to communicate.

Coming into this year, TiVo had been on a roll in the courtroom. The company settled a long-running patent infringement lawsuit against DISH Network (Nasdaq: DISH  ) in 2011 and another one with AT&T (NYSE: T  ) in early January. With 2011 barely in the books, TiVo investors expected the string of big, booming legal wins to continue -- and to drive share prices ever higher.

But the reality was a bit more mellow. TiVo does still have a few infringement suits in process, but the biggest lawyer-powered paychecks have likely already been cashed. Two earnings reports gave management plenty of opportunity to stoke the fires of investor enthusiasm, or at the very least to explain their long-term strategy, but the company opted to set expectations at modest levels. More important, many investors still don't understand what TiVo is all about these days.

So the stock took one beating after another. Today, TiVo is valued at about half of the $15 per share I estimate that its software-based long-term future should be worth. With or without fresh courtroom victories, there are plenty unsigned licensing deals left to close before the entertainment industry moves on to the next level of all-digital evolution.

TiVo is an all-American business that's getting ready to take over the world in its very specific niche. The company follows in the very large footprints of other American winners like the three giants profiled in this free report.

Fool contributor Anders Bylund owns shares in TiVo but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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