XPER - Xperi: An Initial Assessment

2023-09-18 13:37:00 ET

Summary

• Xperi Inc. is a small cap concern with a solid balance sheet and is targeting growth areas in the entertainment technology industry.
• The company operates in four key segments, including HD Radio and IPTV solutions, and has partnerships with major TV and automotive OEMs.
• Second quarter results showed negative sales growth in some divisions, but Xperi Inc. management reaffirmed full year revenue guidance. Analysts have issued recent Buy ratings on the stock.
• An analysis follows in the paragraphs below.

We can only see a short distance ahead, but we can see plenty there that needs to be done. ”? Alan Turing.

Today, we take a look at Xperi Inc. ( XPER ) . As can be seen below, the shares of this small cap concern are deep in "Busted IPO" territory. The company is targeting some interesting growth areas and has a solid balance sheet . Is the dip in the stock since its debut late in the summer of last year worthy of buying yet? An analysis follows below.

Company Overview:

Xperi Inc. is located in San Jose, CA. The company bills itself as an " Entertainment technology company that invents, develops, and delivers technologies that enable extraordinary experiences ." This small software and technology concern offers Pay-TV solutions. These include UX solutions that allows service providers to customize elements of the interactive program guide for their customers and to upgrade the programming features and services. The stock currently trades just over ten bucks a share and sports an approximately market capitalization of $450 million.

The company operates in four key segments as can be seen in the slide below. Xperi has a well-established high definition or HD Radio business and provides several products to consumer electronic makers such as DTS audio and Play-Fi wireless technologies.

Xperi is also focused on several key growth areas. The company offers IPTV solutions in the Pay TV business. The company collects a monthly subscriber fee for its IPTV offerings and also monetizes the viewing of ad supported content through TiVo+.

The second is Connected TV advertising. Xperi provides it TiVo operating system to power smart TVs and monetize ad-supported viewing. The company recently entered into a relationship with Sharp, its second with a major TV OEM. Sharp should start shipping TVs with this operating system in Europe starting next year. This was followed a third smart TV OEM to integrate TiVo OS in its products given the company three OEMs that will start shipping product in 2024.

In Cabin Monitoring, the company offers both IPTV, where the company provides content first video over a broadband platform as well as DTS AutoSense which combines their imaging technology and machine learning to improve automotive safety, comfort and convenience. Xperi recently inked new contracts with some broadcast groups representing over 4,000 radio stations across North America, Europe, Australia and New Zealand. AutoSense now has design wins from six automotive brands encompassing over 80 different models.

The company also is focused on Cabin Entertainment via their DTS AutoStage offering that combines broadcast radio, internet metadata and video. AutoStage is now in approximately four million vehicles via five OEMs including BMW.

Second Quarter Results:

On August 9th the company reported its second quarter numbers . Xperi had a GAAP net loss of 9 cents a share, two pennies above expectations. Revenue on a year-to-year was up one percent to $126.9 million, just over $1 million light of the consensus. It should be noted that 2Q2022 sales included a significant onetime benefit from a mobile imaging customer. Taking that event out of the equation, year-over-year sales growth would have been north of 10%.

As you can see above, the company saw negative sales growth from its two largest divisions which was offset by revenue growth in Connected Car and Media Platform. The latter of which benefitted by increased monetizations as well as a small acquisition (Vewd). Xperi added over 150,000 new net subscribers to its IPTV offerings in the quarter. Management reaffirmed full year revenue guidance and between $510 million and $540 million.

Analyst Commentary & Balance Sheet:

Since second quarter results were posted, BWS Financial ($30 price target), Maxim Group ($18 price target) and Craig-Hallum have all reissued Buy ratings on the stock. Prior to that, Rosenblatt Securities had initiated the shares as a new Buy with a $15 price target in June.

Just under three percent of the shares are currently held short. There has been no insider activity in the stock since the company came public late in summer of 2022. Xperi Inc. ended the second quarter of this year with $112 million in cash and marketable securities on the balance sheet, down $2 million from the end of the first quarter. Management expects a small use of cash overall in FY2023. Xperi carries no long-term debt

Verdict:

Xperi posted a small profit of six cents a share in FY2022 on $502 million of revenues. The current analyst consensus has the company delivering a small loss of four cents a share in FY2023 as sales come in around $525 million. In FY2024, they see fortunes shifting in Xperi's favor with profits of 45 cents a share on sales growth in the high-single digits.

An article on Seeking Alpha in late February noted management believes its connected car and IPTV businesses will roughly quadruple in three years to $330 million. However, right now the company is experiencing middling revenue growth. Paying just under 25 times FY2024's projected EPS seems too dear with deterioration in demand possible for some key end products (Smart TVs, Cars, Consumer Electronics) if the country enters recession, an increasingly likely scenario in my opinion. Therefore, while Xperi has some interesting product offerings and potential, I am passing on any investment recommendation on the stock at this time.

If I paint a wild horse, you might not see the horse... but surely you will see the wildness! ”? Pablo Picasso.

For further details see: