WiLAn on IAMblog

..." The markets just do not get a business like Wi-Lan's Canadian NPE Wi-Lan put out a press release stating that it was to begin exploring “strategic alternatives” for its future direction. It went on to explain: “The Company strongly believes in its current business strategy but does not believe that its current share price accurately reflects its strong balance sheet, the value of its signed license agreements, its business prospects or the residual value of its broad intellectual property portfolio.” Not to put too fine a point on it, it looks like Wi-Lan’s leadership feels that most investors out there do not understand the market that the NPE operates in or the business model that it pursues. The immediate reason for the Wi-Lan statement seems to have been the plunge in its share price last week following an adverse ruling in its long-running dispute with Apple. However, the company’s stock has actually been on a downward path for a while now. At the close of last year, its market capitalisation had fallen to C$577.08 million, which represented a decline of -17.51% from the start of 2012. However, that does not make the central premise of what Wi-Lan is saying wrong. Just after the Apple ruling, Wi-Lan put out a statement that focused on its healthy financial position and emphasised, among other things, the up to $350 million it still has to collect, mostly over the next four years, on licensing agreements that are already in place. This is steady, reliable income, to which can presumably be added other revenues from deals yet to be done. It is the case that there will be setbacks in IP licensing – not every patent will turn out to be a good one; not every case will be won; there will be deal delays – but a diversified, 3,000-strong portfolio of rights already producing a good income, plus the capacity to build on that, looks from the inside out a pretty attractive proposition. The market, however, does not see things that way – it seems fixed on “events”, no matter what the fundamentals. And it’s the same with most publicly-quoted IP companies that will regularly be forced into assertions; just look at what has happened to Acacia over the last two years – it has lost over $1 billion in value. The thing about the market, though, is that it is what it is. You could say that investors have got it wrong and maybe they have – but it’s their perceptions and reactions that dictate stock performance. And the fact is that all too often what they think is important about an IP-based business is not what those who run the business think really matters. As this continues to be the case, as the market resists the lure of education, as share prices continue to fluctuate wildly, as compliance with various regulations becomes more time-consuming, as all of the above makes it much harder to raise money than might previously have been thought, the appeal of running a public company may begin to pale for many – especially once they have extracted their cash. That said, all of these factors also make such businesses very interesting to a certain kind of investor (see this from Bruce Berman’s IP CloseUp blog, for example); though whether you want to be that kind of business is open to debate. Where am I going with all this? Well, pretty much back to the same place I always do when discussing assertion-dependent public IP companies – they are not stable, predictable businesses. You need to understand that as an investor, but you also need to understand that as someone running one. The market does not see them as just another kind of business and if you as a CEO or CFO do not get that, you are going to end up pulling your hair out - especially when some of the perceived benefits of being publicly-quoted do not turn out to be as readily accessible as you might have been led to expect. The people running Wi-Lan know IP backwards and they have built a good business with solid, sustainable revenues; but the market just cannot see it. That must be epically frustrating. Anyway, following is the latest edition of IAM’s highly unofficial IP Index of publicly-traded companies with IP-focused business models. Remember this is a mix of companies that although based around directly leveraging IP and/or providing IP expertise pursue very different business models. It’s actually pretty interesting to see how those in different sectors perform. Prices were as quoted by Google Finance at 10.30 am UK time on 31st October: Acacia (Nasdaq): $750.24 million (market cap); -41.39% (rise/fall YTD) DSS (NYSE) - $53.31 million; -46.54% InterDigital (Nasdaq): $1.431 million; -15.43% IP Group (London): £562.89 million; +25.1% Marathon (OTCBB): $29.87 million; -56.92% Murgitroyd (London): £45.2 million; +12.88% Pendrell (Nasdaq): $479.21 million; +75.59% Rambus (Nasdaq): $974.91 million; +77.62% RPX (Nasdaq): $953.95 million; +102.32% RWS (London): £315.25 million; +24.58% Spherix (Nasdaq): $18.09 million; +15% Tessera (Nasdaq): $1.028 billion; +16.05% VirnetX (NYSE Amex): $1.113.16 billion; -25.75% Vringo (Nasdaq): $235.83; -0.7% Wi-Lan (Toronto): C$399 million; -27.15% Since the last time we produced this list, DSS and Spherix have been added. Of the assertion companies on here, only Spherix has seen a rise. The picture for the R&D/licensing businesses has been much more positive; as it has been for service providers.