2012-11-08 13:20:15 -
A detailed analysis of revenue and royalty documents related to Vringo's (AMEX:
VRNG) recent patent infringement case victory against Google (GOOG) as well as
AOL (AOL), IAC Search & Media (IACI), Gannet Company (GCI)) , and Target
Corporation (TGT), Vringo stands to bring in over $600 million in royalty
revenues through 2014.
Vringo said in its press release issued on November 7(th) that the way to
determine the incremental royalty base attributable to Google's infringement was
to calculate 20.9% of Google's US AdWords revenues, then apply a 3.5% running
royalty rate on that base.
Google is estimated to have $11 billion in ad revenues from mid-November 2012
through the end of calendar 2012. 95% or $10.45 billion of this is from AdWords.
The US cut of that $10.45 billion is 45%
or $4.7 billion. The jury awarded
about 20% of this amount as a base from which to calculate the 3.5% royalty.
20% of $4.7 billion is about $970 million and at a 3.5% royalty rate this yields
about $34 million in royalty payments from Google to Vringo in 2012.
This same formula may be applied to the projected total ad revenues for 2013
through the end of April 2016 when the royalty is slated to end.
Based on Google's past growth rates, Google may see strong growth in its total
ad revenues to $50 billion in 2013; $58 billion in 2014; $67 billion in 2015;
and $19 billion for the first four months of 2016. The numbers add up to $635
million in royalties to Vringo over the next four years.
These figures only include Google, which of course contributes the biggest slice
of royalties for Vringo at the moment, but once royalties from the other four
defendants are added, the $635 million target gets bigger, not smaller.
We are also reminded that this revenue is "all cash flow" with little, if any,
costs associated on a going forward basis.
Vringo had a net loss in 2011 of $7.5 million. Starting in 2013, Vringo would
see revenues of over $140 million per year through the end of 2015. High margin
profits seem to be in Vringo's near future.
Other IP companies such as Acacia Research (ACTG) and RPX Corporation (RPXC) are
trading at a forward P/E of 10. If Vringo drops $100 million to the bottom line
in 2013, investors could be looking at a $1 billion+ market cap on Vringo.
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