Can TiVo Overcome Wall Street's Doubts?

You can count June 7, 2013 as a day that will live in infamy for shareholders of TiVo (NASDAQ: TIVO  ) .

The shares of the video-recorder trailblazer tumbled about 20% after the company said it would receive $490 million as a settlement for a patent lawsuit against Google's (NASDAQ: GOOGL  ) Motorola Mobility and other entities. Some Wall Street professionals had been looking for a settlement of as much as $1.7 billion.

The sub-par sum also crystallized much of Wall Street's pessimism about a company, which skeptics fear might have lived out its usefulness in the consumer marketplace. New splashy rivals such as Roku and Aereo have grabbed headlines lately, making TiVo look, well, oh-so-20th-century.

In today's investing landscape, a company is often judged on the amount of buzz it can generate -- both in its finances and its image.

The problem for TiVo is that the court settlement underscored the company's challenges on Wall Street. If you believe (as I do) that the stock market can be regarded as the ultimate arbiter of a company's fortunes, it was easy to recognize that the judgment damaged the company's standing in the investment community.

Remember, TiVo's stock had jumped 8% on Thursday, the day before the announcement, when Motorola Mobility revealed that it had accomplished an out-of-court settlement with TiVo. That occurred only days before the legal matter was supposed to go to trial and analysts were smacking their lips at the prospect of a very large payout in court.

Lazard Capital Markets' Barton Crockett reacted swiftly and decisively by reducing his investment rating on the stock to "neutral" from "buy." J.P. Morgan analysts, meanwhile, had planned to see more than $400 million from Motorola by itself.

The company's board of directors tried to calm panicky shareholders. It announced a large expansion of the company's stock repurchase program.

The board doubled the size of the authorization from $100 million to $200 million and extended the share-buyback plan for another two years until Aug. 29, 2015. 

TiVo's stock price results reflect Wall Street's questions about its prospects, but the company says it is pleased with the progress it is making in its balance sheet. CEO Tom Rogers deemed it to be "strong" on the day of the settlement.

Rogers added that the company's cash position, following the settlement, would exceed $1 billion "before inclusion of future expected payments of at least $400 million from prior settlements."

"We intend to use our significant capital resources to drive shareholder value, including more aggressively returning capital to shareholders under our newly increased share repurchase authorization and we will be increasing the size of our 10B5-1 trading plan as soon as permissible," CEO Rogers said.

Rogers added, "Importantly, we just recently closed one of our best quarters ever in terms of subscription growth, driven by a number of our existing operator deals in the U.S. and abroad that are now fully up and running. So, as we look out beyond today's important settlement we believe our core operating business will continue to drive growth to both the top and bottom line."

Still, the numbers show that Wall Street has cooled on TiVo's prospects. Consider that over the past 12 months, the stock has gained 33% while the S&P 500 index is up 23%. But year to date, TiVo is down 11% and the S&P 500 is up 14%. And since the end of May, TiVo is down 15% while the S&P index has dropped 0.6%.

With the disappointment of the settlement still ringing in Wall Street analysts' ears, the challenge for TiVo is going to be take its vaunted balance sheet and prove its relevance – both in the marketplace and in the stock market.

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