Monday, December 9, 2013

Vringo Investment Thesis 12/9/2013

Vringo (Nasdaq: VRNG), is a PIPCO focused on monetizing their internet search (Lang) and telecom infrastructure (Nokia) patent portfolios.  Vringo is headed by a very experienced management team, which involves former Nokia executive David Cohen.  

Vringo won a $30M jury verdict against Google et al, back in November 2012.  Ongoing royalties are still being decided by Honorable Judge Jackson in Virginia.  Everything up to the ongoing royalty is being appealed with a hearing scheduled in Q1 2014.  This case at minimum should yield Vringo a high eight figure revenue number if Google in fact has a workaround.  If Google's proposed workaround continues to infringe the Lang patents, Vringo will likely realize a mid nine figure number total for coverage through the remainder of the patent life, set to expire in late 2016.  Google's attempts at invalidating the patents through ex parte reexaminations has failed with three certificates being re-issued.  One reexamination is still pending with a decision by the USPTO to reexamine due very shortly.

In Q3 2012, Vringo acquired a wireless telecom portfolio from Nokia.  The first target for the monetization campaign was ZTE, with litigation filed in Germany, UK, France, Germany, Spain, Australia, and India.  An infringement hearing was held on November 12, 2013 in Germany for patent EP 1,186,119. A ruling is due on December 17th 2013 9:00am German local time.  On November 22nd, Vringo announced that a court in India has granted an injunction against ZTE for patent 243,980.  Vringo's goal against ZTE is two fold.  First, Vringo is trying to secure a global licensing agreement with ZTE, which should yield a substantial revenue stream to Vringo.  Second, a global license with ZTE will benchmark the portfolio and create a framework for Vringo to litigate and license the portfolio with other telecom infrastructure manufacturers. 

Vringo currently has a market capitalization of $256M, which I believe to be severely undervalued compared to the likely revenue streams that management will secure over the next two years.  I view investor sentiment to be extremely bearish as the wait for ongoing royalties continues to test retail investors patience.  The bearish sentiment culminated in a article, which I view as a sign of capitulation.  I am expecting shares to trade higher over the next week and a half heading into the German December 17th infringement ruling.

I have a 12/31 price target of $3.50 and expect shares to experience a revaluation significantly higher in 2014 as management continues to execute and further developments progress on the Google/ZTE fronts.  Shares should easily double in 2014 to over $6.

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