Worlds Inc (WDDD)

[Tinkerer]

How Much Money Does WDDD Stand to Win Against 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 3%-7% for Running Royalty to determine past damages I get these for the 3 years

RR 2010 2011 2012
3% $35.1M $35.1M $35.7M
4% $46.8M $46.8M $47.6M
5% $58.5M $58.5M $59.5M
6% $70.2M $70.2M $71.4M
7% $81.9M $81.9M $83.3M

RR Total 2010 - 2012
3% $105.9M
4% $141.2M
5% $176.5M
6% $211.8M
7% $247.1M

Going back to 2007 (Due to limit of previous 6 years) I reduce the Rev by 15% each year from the 2010 estimate above to get
RR 2007 2008 2009
3% $21.6M $25.6M $29.8M
4% $28.7M $33.8M $39.8M
5% $35.9M $42.3M $49.7M
6% $43.1M $50.7M $59.7M
7% $50.3M $59.2M $69.6M

Totaling all past damages from 2007 to 2012, using respective royalty rates, I get:
RR Total $
3% $182.9M
4% $243.5M
5% $304.4M
6% $365.3M
7% $426.2M

Looking ahead, for the years 2013-2018 (6 years left on patents), using revenue figures 15% less than 2012 (this assumes WOW and COD will make ATVI 15% less money/year, though it appears they will make the same or more), I get:
RR 5 years 2013-2018
3% $182.1M
4% $242.8M
5% $303.5M
6% $364.1M
7% $424.8M

Combining the amount for past damages (2006-2012) and the amount for future damages (2013-2018), using respective royalty rates, I get:
RR Total $
3% $365.0M
4% $486.3M
5% $607.9M
6% $729.4M
7% $851.0M

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
3% $146.0M or $1.27/share cash
4% $194.5M or $1.69/share cash
5% $243.2M or $2.11/share cash
6% $291.8M or $2.54/share cash
7% $340.4M or $2.96/share cash

Assuming a conservative 2:1 P/E ratio, the share price would settle in at:
RR 2:1 P/E ratio
3% $2.54/share
4% $3.38/share
5% $4.22/share
6% $5.08/share
7% $5.92/share

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 only the 6 years from 2007-2012, and add this amount to the future damages, the price/share would be as follows:
RR 40% Price/Share cash
3% $292.3M or $2.57/share cash
4% $389.3M or $3.39/share cash
5% $486.7M or $4.23/share cash
6% $584.0M or $5.08/share cash
7% $681.4M or $5.92/share cash

Assuming a conservative 2:1 P/E ratio, the share price with treble damages would settle in at:
RR 2:1 P/E ratio
3% $5.14/share
4% $6.78/share
5% $8.46/share
6% $10.16/share
7% $11.84/share

A few things to keep in mind:
1. Remember, these estimates are for the ATVI lawsuit only. 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.
2. These estimates are conservative (low). I have hardly done justice to the top end of what WDDD could rightfully win in court. If you follow my process, I assumed revenues lower than reality so that we might arrive at sober, basement-bottom figures absent fluff.
3. The 3% running royalty rate is on the low end; the judge may award WDDD a running royalty rate of 10%.
4. If ATVI decides to settle with WDDD, we can assume the lump sum settlement will be at a discount from the total past damages, and we can assume the ongoing royalty rate will be reduced from what it would be if a jury decided in favor of WDDD. 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.
5. ATVI is known for settling; a positive Markman hearing may be all WDDD needs to receive a rather large settlement from ATVI.
6. As you can see, WDDD stands to make much money via enforcement of its patents, and you, the shareholder, stand to make much 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 rather easily 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