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Updated Worlds' Valuation
Based on the PTAB's decision, latest litigation, and the latest 10-Q, I've updated Worlds' Valuation.
WDDD's fair value is at least $2.50/share and the probabilities suggest it averages around $5.75/share.
Current shares and live price used
The valuation estimates use the current number of MRMD shares Worlds holds and the live share price.
Click here and go to line 33 of the Assumptions sheet.
There is an old expression among lawyers:
Mar 30, 2006 - Earliest infringement damages (6 years prior to filing complaint)
Mar 30, 2012 - Worlds sued Activision
Sep 24, 2013 - Certificates of correction issued
Nov 12, 2016 - Worlds' patent chain expired (20 years after patent application)
Nov 12, 2022 - Statute of limitations is up (6 years after patent chain expiration)
Updated Worlds' valuation based on their 10-K
I've updated Worlds' valuation estimates based on their latest 10-K.
Changes (such as accumulated deficit, stockholders' deficit, WDDD outstanding shares, and MRMD shares) are reflected in the assumptions.
I am particularly excited about Worlds:
The latest valuation spreadsheet automatically updates
As MRMD share price changes, the spreadsheet automatically live updates. I think there can be up to a 20 minute delay on the quote.
At this moment, with the market value at $0.28, the adjusted book value is $0.53 (assuming Worlds' IP has no value) and the fair value is $6.64±3.53.
Worlds' P/E ratio
Worlds can generate earnings by selling their MRMD shares and by receiving rewards from IP litigation. I agree with you that since these earnings are one-time events, a P/E ratio of 1 is appropriate, assuming Worlds just sits on their earnings, without using them for additional opportunities.
But Worlds can also generate earnings by pursuing new opportunities, such as product development and acquisitions. If, for example, they use some of their MRMD earnings to pursue such opportunities, then a P/E above 1 would be deserved. Even though MRMD has its own P/E ratio, any earnings Worlds puts to use deserve a P/E ratio above 1.
Since we don't know how, or if, Worlds plans to put their earnings to use, I have decided to lower my P/E ratio assumption from 2 to 1.5. Keep in mind, the computer and technology sector has an average P/E ratio of 21. If their earnings begin to be put to use in a high growth area, their P/E ratio will need to raised to reflect that potential.
You can see the latest adjusted book and fair values at: Worlds' Valuation.
New valuation estimates
I have updated the latest Worlds' valuation estimates, since the CAFC has vacated and remanded the PTAB decision to cancel most of Worlds' patent claims.
The CAFC stated: "we hold that the Board erred in its real-party-in-interest analysis." Assuming there is a 90% chance that the PTAB will concur, after discovery and RPI analysis, the valuation estimates are:
Valuation Estimates
The CAFC's latest decision was vacate+remand.
I wonder if they will take the same path.
Latest valuation estimates
For the latest Worlds' valuation estimates, check here.
Worlds' MRMD holdings
From examining Worlds' latest annual report and 10-Q, the breakdown of Worlds' share of MRMD is:
I've reflected these numbers in the latest Worlds' Value Spreadsheet.
5,936,115 - received when WORX (Worlds Online) became MRMD (MeriMed)
-582,805 - sold to fund operations (during 2017)
-1,069,045 - sold to fund operations (during 1st quarter 2018)
---------
4,284,265 - remaining (as of April 1, 2018)
Book value: $0.27
Expected value: $5.00±3.32
Good point. I've updated the spreadsheet to reflect Worlds' current stake (as reflected in the latest 10-Q) in MRMD.
That brings Worlds' book value to $0.232/share, with the current price/share still below book, but only by about 5%.
WDDD's current price reflects the opinion that Worlds will lose all litigation (at the CAFC, PTAB, Activision case, and all other potential cases).
WDDD is well below book value now
Because of Worlds' stake in MeriMed (MRMD @ $1.62/share at the close), WDDD's book value is $0.29/share. This puts WDDD's current $0.22/share at about 25% below book!
To see what WDDD might be worth, with even modest success, check out the latest intrinsic value spreadsheet.
I currently give the CAFC only a 15% chance of restoring all of Worlds' patent claims, but give the PTAB an 80% chance of doing so after the CAFC remands the case back with instructions on doing a proper discovery in regards to the real party-in-interest (RPI).
It's likely the IPR will RIP when the RPI is discovered (lots of ways to use those three letters).
Latest intrinsic value
I've updated the Intrinsic value spreadsheet with the latest number of outstanding shares.
The current (it changes all the time) expected value is:
$4.99±3.49/share
A pretty big variance, because of the many uncertainties.
Valuation spreadsheet adjustments to attorney fees
Thanks abcd12 for your thoughts on the attorney fees in the Worlds' Intrinsic Value spreadsheet.
I agree that if the Activision lawsuit goes favorably, the other lawsuits should cost Worlds much less. Therefore, I've lowered the "other lawsuit" attorney fees to 10% (they use to be 20%).
For the Susman Godfrey attorney fees, I've lowered them from 50% to 45%. I know they seem unreasonably high to you, but I believe my numbers are very close to the reality.
Updated intrinsic value spreadsheet with SC decision
The intrinsic value spreadsheet has been updated to reflect today's Supreme Court decision.
There was a 10% chance given that the Supreme Court would restore all claims by invalidating the entire IPR process. This probability has been eliminated, effectively making it a 0% chance.
The current (it changes all the time) summary now reads:
If everything goes wrong for Worlds and they lose all their litigation, the stock has an intrinsic bottom value of $0.23/share. On the other hand, if everything goes exceedingly well, the stock would have an intrinsic value of $21.50/share. If the litigation follows these assumptions exactly, then Worlds' intrinsic value is $6.03/share.
Interpreting the Worlds' intrinsic value spreadsheet
The spreadsheet rows 42-1041 contain 1,000 sample scenarios or possible outcomes. Each columns' value is based on the assumptions (at the top of the sheet).
So take row 42 for example:
* The A-column (CAFC restores all claims) is either TRUE (25% of the time) or FALSE (75% of the time), because that assumption is currently set at 25%.
* The B-column (PTAB restores all claims) can only be TRUE if the CAFC fails to restore all claims, and when that happens, it is TRUE 85% of the time (according to the assumption).
* The C-column (SC restores all claims) is TRUE 10% of the time.
* The D-column (All claims restored) is TRUE whenever any of the first 3 columns are TRUE.
* The E-column is a little more complicated. It considers whether all claims are restored, odds of settlement, odds of triple damages, reasonable royalty rate, and subtracts out attorney fees.
* The F-column (Other settlers) guesses how many of the other infringers will decide to settle. It is 0 if the Activision lawsuit goes unfavorably.
* The G-column (Other awards) has example awards from the other lawsuits, minus attorney fees.
* The H-column (Awards) is the total totals from the Activision and other lawsuits.
* And finally, the I-column has example intrinsic values of the company per share, based on the awards, previous net losses, taxes, MediMed stake, and P/E ratio.
I've added some of these notes to the column headings of the sample scenarios to hopefully make things clearer.
Worlds' Intrinsic Value
I've made some changes to the Worlds' Intrinsic Value Spreadsheet:
* You can no longer edit it directly (but you still can add comments which I will consider)
* Changed the number of sample scenarios from 100 to 1,000 (for more accurate probabilities)
* Added notes to most of the assumptions
Averages are on row 38.
Worlds' Valuation Averages
I added averages to the columns in the 100 sample scenarios. You can now see: how often all claims are expected to be restored, average expected awards, and the average intrinsic value of Worlds (with the given assumptions) Once again, the spreadsheet is at:
https://docs.google.com/spreadsheets/d/1sL_T3X29Bs2VaADIISTH7P2vqtmP5eOEBWsY9rjIJwU/edit#gid=1565661032
Worlds' Valuation
I've made a spreadsheet that can help you compute Worlds' valuation, given certain assumptions. You can adjust the assumptions as you see fit. Check it out at:
https://docs.google.com/spreadsheets/d/1sL_T3X29Bs2VaADIISTH7P2vqtmP5eOEBWsY9rjIJwU/edit#gid=1565661032
I reserve the right to accept or reject any changes you make to it, depending on how I like them.