Worlds Inc (WDDD)

[Tinkerer]

How Much Money Does WDDD Stand to Win from Activision (ATVI)?

This summary takes into account the Activision lawsuit only.

From this Investor Summery Sheet posted on ATVI website:
http://files.shareholder.com/downloads/ACTI/2435818763x0x634174/b65ae5ed-ce22-4042-a3be-8fdfd1e96547/01.10%20Q4%20Summary.pdf

Its easy to figure out North America Rev for 2010, 2011 & 2012.
Assuming US is 90% of NA Revenue we can estimate US Rev for those years.
Total US Revenue:
2010 - $2.17 B
2011 - $2.17 B
2012 - $2.2 B

Using this http://tippie.uiowa.edu/krause/spring2012/atvi_sp12.pdf
Activision research report for 2011 I can get the breakdown of % of Revenue for both COD and WOW. For 2011 it was 54% or $2.6 B of the total Revenue $4.76 B

So plugging WOW + COD Revenue of 54% into the 3 years above I get the revenue's Susman will be going after in our suit.

Total US COD + WOW Revenue:
2010 - $1.17 B
2011 - $1.17 B
2012 - $1.19 B

Now using 2%-5% for Running Royalty to determine past damages I get these for the 3 years

RR 2010 2011 2012
2% $23.4M $23.4M $23.8M
3% $35.1M $35.1M $35.7M
4% $46.8M $46.8M $47.6M
5% $58.5M $58.5M $59.5M

RR Total $ (2010-2012)
2% $70.6M
3% $105.9M
4% $141.2M
5% $176.5M

Going back to 2006 (Due to limit of previous 6 years) I
reduce the revenue by 20% each year from the 2010 estimate above to get:
RR 2006 2007 2008 2009
2% $9.6M $12M $15M $18.7M
3% $14.4M $18M $22.5M $28.1M
4% $19.2M $24M $30M $37.4M
5% $24M $30M $37.4M $46.8M

Totaling all past damages from 2006 to 2012, using respective royalty rates, I get:
RR Total $ (2006-2012)
2% $125.9M
3% $188.9M
4% $251.8M
5% $314.7M

Looking ahead, for the years 2013-2018 (6 years left on patents), using revenue figures 20% less than 2012, I get:
RR Total $ (2013-2018)
2% $114.2M
3% $171.4M
4% $228.5M
5% $285.6M

Combining the amount for past damages (2006-2012) and the amount for future damages (2013-2018), using respective royalty rates, I get:
RR Total $
2% $240.1M
3% $360.3M
4% $480.3M
5% $600.3M

To get true final #'s you would have to back out taxes and legal fees. Assuming WDDD keeps 40% of total damages, the stock price/share would be (based on 115M outstanding shares):
RR 40% Price/Share cash
2% $96M or $0.835/share cash
3% $144.1M or $1.25/share cash
4% $192.1M or $1.67/share cash
5% $240.1M or $2.09/share cash

WDDD alleges willful infringement of the patents, thereby allowing the judge to award WDDD treble (triple) damages for up to six previous years (2007-2012). If we treble the 6 years from 2007-2012, the price/share would be as follows:
RR 40% Price/Share cash
2% $196.8M or $1.71/share cash
3% $292.2M or $2.57/share cash
4% $393.6M or $3.42/share cash
5% $617.8M or $5.37/share cash

A few things to keep in mind:
1. These estimates are EXTREMELY conservative (low). I have hardly done justice to the top end of what WDDD could rightfully win in court, and the low end is quite honestly way too low. If you follow my process, I assumed revenues lower than reality so that we might arrive at sober, basement-bottom figures absent fluff.

2. The 2% and 3% running royalty rates are on the low end; the judge may award WDDD a running royalty rate of 10% if she likes.

3. These estimates contain no Price/Earnings ratio multiple. They are a 1 for 1 correlation between stock price/share and earnings price/share. If you factor in a 2:1 P/E ratio (which I believe is fair), you can double the price per share; a 4:1 P/E ration would quadruple the price/share.

4. These estimates do not take into account the rest of the MMORPG gaming industry; they take into account the ATVI lawsuit only. Assuming ATVI is roughly 40% of the total MMORPG gaming industry, multiply the price/share by 2.5 to come up with the projected share price of WDDD in 2-3 years after companies settle out of court with WDDD.

5. If ATVI decides to settle with WDDD, we can assume the lump sum settlement will be at a discount from the total past damages. A settlement would be very nice because it puts money in the pocket immediately and usually begins a snowball effect among other infringers to settle as well.

6. As you can see, WDDD stands to make a TON of money via enforcement of its patents, and you, the shareholder, stand to make a ton as well. If WDDD’s case goes to court, and they obtain a trial victory like Vringo (VRNG) did against Google, and willful infringement is proven, WDDD could likely be awarded a 5%-7% running royalty rate and be trading at $7-$12/share within 18 months from now. Stay tuned…

Other suits beyond Activision could include:

Disney
Electronic Arts
Facebook
Zynga
Take Two
Nintendo
Square Enix
Ubisoft
Sega
THQ
Namco Bandai
Konami
Google
Yahoo