(By Rich Bieglmeier) The iStock money flow screen really is a great resource. Not only does it help us find stocks on the move, like last week's highlighted stock First Solar, Inc. (FSLR)
, but it also introduces us to unheralded companies with compelling stories.
With nearly 10,000 publicly traded stocks, it's impossible to keep up with every hot stock with some great new something. That's why we let our proprietary accumulation or distribution sheet do the work for us. It brings to the top companies that Wall Street is buying in chunks, right now. From there, iStock tries to figure out way and does it have legs or is it a one-time event.
Vringo, Inc. (VRNG) could be a tale of rags-to-riches for shareholders. TheFlyontheWall.com says Managing Director of Formula Capital, James Altucher believes "Vringo shares are poised to rise ten-fold" because the company will – in his opinion – prevail in its pending patent infringement case with Google Inc. (GOOG).
The patent infringement legal squabble makes the case that Google`s advertising search results "based on content relevance and click-through rates" are covered by Vringo`s patents and this technology is Google's "primary source of revenue"
According to Google's most recent 10Q, "Advertising revenues made up 97% of our Google revenues for the three and six months ended June 30, 2011 and 96% of our Google revenues for the three and six months ended June 30, 2012."
Let's do some math together. The clock for the suit started on September 15, 2005. Since then, Google has done nearly $160 billion in revenue. That's roughly $153 billion using Google's 96% of revenue 10Q figures. The suit only covers US revenue, chopping the number in half, which means somewhere around $75 billion of Google's sales are subject to back dated royalty payments, should the tech monster be on the wrong side of the decision.
Vringo seeks a reasonable royalty payment in the lawsuit. What's a reasonable royalty fee? That's the billion dollar question. But for our purposes, we will use 0.5% to a max of 5%; although, we don't feel the company will hit the 5% jackpot. The calculator says a positive outcome could range between $375 million and $3.75 billion.
With 54 million shares outstanding, the cash award alone would value VRNG from $6.94 to $69.44 per share. That's just a win against Google. The market is likely to assign a bigger premium as many search engines use a similar technology. A win for Vringo means other search engine companies' executives will be nervous and watching for a summons in the certified mail.
All the fun starts on October 16 and is expected to last about two weeks. This matter is likely to be settled before the presidential election. It's also possible that the combatants reach an agreement before stepping into court. iStock believes a payment in the billion dollar neighborhood, plus continued royalty payments through 2016, is the minimum Vringo's management would be willing to accept.
Lest you believe the odds are long, Vringo's management team has success in previous litigation. David L. Cohen, Special Counsel, won a $715 million settlement, plus ongoing royalties, for patent infringement from Apple Inc. (AAPL) while at Nokia Corporation (NOK). While at NTP, Donald E. Stout, Director & Chair, was a part of a $612.5 million settlement with Blackberry.
Obviously, nothing guarantees a positive outcome for shareholders of Vringo, Inc. (VRNG). If they should lose, the stock probably gets cut in half; however, the company just finalized the acquisition of Nokia's foundational wireless infrastructure IP portfolio. VRNG is yet to take possession of the patents, and monetizing the intellectual property through 2019 would be the fallback position for investors and the mobile technologies company.
The purchase is significant. In an equity briefing, Thomson-Reuters reports "Vringo has increased its IP portfolio by 15x and emerges as a power house in IP assets and IP monetization across the entire range of tech`s hottest sectors from mobility, to search engines, to digital advertising" by picking up 500 Nokia patents.
In a case like this, fundamental and technical analysis means nothing; both will be distorted based on the lawsuit's outcome or settlement. It's sort of a bet on black or red, except with a much higher payout if the ball lands on your color versus the loss if the ball bounces the other way.
Last week, Wall Street bet 11.3% of VRNG's market cap ($5.55 million) on the ball landing in the company's and shareholders' favor – stay tuned.