Possible way to value what the stock is worth today
The way I look at it, here are the factors in the value of the stock price:
1: Expected a royalty rate of between 1% to 3%.
2: Patents cover 3.3 years
3: The sales of the covered products are $3 billion per year in the current lawsuit.
4: The case to the final end will take 5 years.
5: Discount rate of 10% per year
6: Each step in the case (trial, appeal, and Supreme Court submission for an appeal) has a 90% chance of success.
With those at the inputs, here is the calculation of the present value of the stock price.
1: $3 billion in revenue per year times 3.3 years is $9.9 billion in revenue.
2: The royalty rate could range from 1% to 3% so those times $9.9 billion revenue is $99 million to $297 million is royalties.
3: Since it is clearly willful infringement, there could be triple damages, but assume at least double as a part punishment so times two on the royalty rate gives a range of $198 million to $594 million.
4: The case will take at most five years and the discount rate is 10% so $198 to $598 discounted for five years at 10% gives a present day value of $122 million to $368 million.
5: Each of the three steps to go in the progression through the court has an expected rate of success of 90%, so multiple the dollar range by 90% x 90% x 90% and you get an expected dollar range of $72 million to $268 million.
With 110 million shares outstanding the present value of the shares today would be in the range of $0.66 to $2.44.
There are a number of items that would change this range. These are
1: There are more infringing products than just the ones in the current lawsuit with Activision. A success in this case would open the door to those other products and have the company in a much better position to win since there would be cash in the bank.
2: The calculated price does not take out any lawyer fees, which could be up to 33% since the case is on contingency.
3: The is no accounting for taxes but there are about 40 million in loss carry forwards that would offset that.
4: As each step is passed in the case, assuming the company wins, the numbers would improve. As an example, I expect triple damages but only used double for my calculations. Another example is one the company wins at trial, there would only be two 90% events instead of three and the per share price would go up.
5: Dilution will lower the stock price but I expect that it is more than offset by the potential other products that could be gone after once there is a win in the current case.
Louis J. Desy Jr.
AI
