Marathon Digital Holdings Inc (MARA)

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HC Wainwright initiates coverage.

Marathon Patent Group, Inc.

MARA: Price: $11.65; Market Cap (MM): $65
Rating: Buy; Price Target: $17.00

Amit Dayal


Pursuing A Diversified Patent Monetization Strategy; Initiating With A Buy


Overview We are initiating coverage on Marathon Patent Group, Inc. (MARA) with a Buy rating and a 12-month price target of $17.00. MARA is a patent acquisition and licensing company, which acquires and monetizes intellectual property through both the prosecution and licensing of its patent portfolio. We believe management’s emphasis on generating stable cash flows from its diversified portfolio through actively managed concurrent licensing campaigns, rather than a reliance on the unpredictable outcome of any specific lawsuit differentiates it from other competitors.



Leveraging Broad Patent Acquisition Strategy Investors should expect MARA to cast a wide net for its patent acquisition to include all providers and owners ranging from individual inventors to Fortune 500 companies. The company’s patent supply pipeline is supported through its relationships and network within the industry ecosystem that includes patent brokers and dealers, inventors, patent owners and entities that own patent portfolios.



Combining Licensing and Litigation MARA typically avoids approaching infringers (potential defendants) in an antagonistic fashion. Management’s initial view is to approach potential defendants as potential licensees with the objective of executing a license agreement by demonstrating evidence of its claims and the value of MARA’s patented technology within the defendant’s product offering. If this friendly approach does not gain traction, management then moves forward with litigation. Using this approach management hopes to reduce time to monetization.



Opus Analytics Could Create Material Revenue Diversification Marathon has been working towards building a commercial version of an internal IPNav platform that streamlines the workflow for undertaking IP diligence. A successful market adoption of this service could be a very important catalyst for MARA and also provide a major differentiating factor in an industry that the World Intellectual Property Organization estimated was generating $180B in licensing fees in 2009 alone.



Valuation We believe MARA provides investors with an opportunity to benefit from the monetizing of a diversified portfolio of patents through actively managed concurrent licensing programs. Management’s friendlier strategy of pursuing licensing first and then litigation enables quicker monetization of assets. Its strategic relationship with IPNav allows for multiple licensing campaigns without substantial increase in overheads. We believe future growth will be driven by the company’s ability to continue building a relevant portfolio of monetizable patents and the success of initiatives such as its Opus Analytics platform for IP and finance professionals (expected launch in 4Q14). The company’s recent up-listing to the Nasdaq should allow the stock to be considered more easily for inclusion in institutional portfolios. Because, MARA is in the early stages of commercialization, we use a DCF analysis for our valuation. Our analysis leads us to conclude that MARA should be fairly valued at $17.00 per share (pls. see Valuation section for DCF assumptions).



Risks – 1) Evolving regulatory environment; 2) Acquisition Risks; 4) Execution and partnership risks.