Rovi's stock took a steep nosedive this past Friday, plummeting over 19% after the pharmaceutical company warned investors of significantly lower earnings before interest, taxes, depreciation, and amortization (EBITDA) for the upcoming year. The warning stemmed from decreased activity levels anticipated within its third-party manufacturing business, particularly affecting its collaboration with major client Moderna.
On February 7, 2024, trading started with Rovi shares experiencing delays before opening at €54.64, marking an initial drop of around 17.6%. When trading resumed, the stock continued to decline dramatically, hitting €53.2 per share, which translated to a staggering 19.53% decline. The company initially struggled to stabilize its stock price, eventually settling around 15% down as markets absorbed the grim forecast released during the pre-market hours.
Rovi communicated to the Comisión Nacional del Mercado de Valores (CNMV) about the impending decline, predicting its EBITDA for 2024 would fall 10% to 15% lower than the market consensus of €236 million, estimating instead around €200 million. The principal cause was identified as less than anticipated activity within their contract development and manufacturing organization (CDMO) sector during the last quarter of the previous year.
Analysts viewed the news critically, with Bankinter adjusting their price target for Rovi shares from €73 to €60.10, simultaneously issuing 'sell' recommendations. The financial community remains cautious, as reduced expectations for Rovi's performance continue to generate skepticism about the sustainability of its manufacturing business.
For the first three quarters of 2024, Rovi posted revenues of €564.6 million—a decrease of 5% year-on-year—and reported net profits of €113.5 million, which also represented a 4% dip compared to the prior year. The decrease has been primarily attributed to lower sales linked to COVID-19 vaccine manufacturing. Notably, revenue linked to this manufacturing business saw declines for the year, reflecting broader market conditions.
Despite the troubling projections for EBITDA, Rovi has indicated it is maintaining its forecasts for 2025, which suggest operational revenues could stagnate or see declines of up to 10% based on the current operating environment. Nevertheless, Rovi insists its core CDMO business, which has witnessed substantial growth over recent years, remains promising.
For contextual clarity, the impact of Moderna—a major player in the vaccine market—on Rovi’s business model cannot be overstated. Recent adjustments to Moderna's projected revenues, disclosed on January 14, revealed significant reductions, with projections falling between $1.5 billion and $2.5 billion, down from earlier estimates of $2.5 billion to $3.5 billion. This adjustment has reverberated through Rovi, impacting investor confidence as both companies grapple with lowering demand for COVID-19 vaccines.
Further complicate Rovi’s scenario, were internal discussions held last October, where the board had considered divesting parts of their CDMO business but eventually decided against it. This strategic choice highlights their belief in the long-term potential of this segment, notwithstanding the current operational challenges, emphasizing the commitment to preserving and nurturing the manufacturing arm beneath its existing framework.
Javier López-Belmonte Encina, Rovi's Vice President and CFO, previously expressed optimism about the CDMO segment during company assessments and noted, "we continue to be excited about the potential, both short and long term, of our global leading third-party manufacturing business, particularly as we invest significantly to expand our production capabilities."
With Rovi set to release its complete earnings report for 2024 on February 25, market watchers will be closely observing how the company articulates its strategy going forward and how it plans to navigate through these tumultuous financial waters. How Rovi addresses its earnings shortfall and its relationship with key clients like Moderna will undoubtedly influence investor sentiment as the company looks to recover from its recent stock market plunge.