from Barron's
Xperi Holding is an obscure San Jose—based company that has piled up a remarkable collection of tech patents—and the stock seems seriously underpriced. Xperi (XPER) was built through a multiyear series of acquisitions. The cornerstone deal was in June, when Xperi combined with TiVo, the once-iconic producer of digital video recorders.
With the TiVo deal closed, Xperi has 11,000 patents, many focused on video and audio technology; annual revenue of well over $1 billion; and more than $420 million in annual cash flow. Xperi has an enterprise value of about $2.4 billion, which seems absurdly low. Comparable companies like InterDigital (IDCC), Dolby Laboratories (DLB), and Rambus (RMBS) trade in the range of four to six times revenue; Xperi trades for under two times revenue.
To address that issue, Xperi plans to divide into two companies. CEO Jon Kirchner thinks that a split can unlock considerable value. About half of its business comes from patent licensing. The other half produces software, which it monetizes with a licensing model—similar to what Dolby does.
B. Riley analyst Eric Wold has a Buy rating on Xperi shares and a price target of $35—more than double their recent price of $15. “Considering the attractiveness of a combined portfolio…and continued evolution of media inside and outside the home, we see an opportunity for increased penetration of existing customer relationships with the combined offerings,” he wrote in a recent research note.
The kicker is TiVo’s long-running patent dispute with Comcast (CMCSA). TiVo has been asserting that Comcast’s X1 set-top box violates its patents. TiVo has sued Comcast three times before the U.S. International Trade Commission, seeking an injunction barring the sale of the X1 box. The first two times, TiVo won, but Comcast figured out workarounds and paid nothing. The third trial decision is due this week. Wold thinks that a win could mean as much as $55 million a year in royalty payments and a catch-up payment of as much as $275 million. But Wold isn’t counting on a win—even without one, Xperi looks remarkably cheap.
