Marathon Patent Group (NASDAQ:MARA) is a patent acquisition and licensing company, which acquires Intellectual Property (patent) assets and tries to monetize the patents by companies utilizing the patented inventions. CEO, Doug Croxall, has guided the company through its 2013 transformation with key developments being: partnering with IP Navigation, raising an adequate amount of capital and acquiring patents that cover a broad range of technologies.
MPG currently owns 118 patents across 9 different patent portfolios. Three of the portfolios, Sampo, Relay IP and CyberFone are already revenue generating portfolios with a combined 42 settlements between them. These three portfolios should continue to generate revenues while the company goes for "blue sky" targets, which could yield significant results. There are another three portfolios Vantage Point, CRFD Research, and E2E Processing that have recently started their own respective monetization campaigns. In total there are 88 cases filed, which could yield a steady stream of revenue and profits over the next 5 years. Recently at the Noble Financial Capital Markets conference, Croxall estimated that the current patent portfolios should yield in excess of $100 Million over the next 3-5 years. Gross margins were estimated between 40-50% of revenue and operating expenses were estimated between 10-20% of revenue.
MPG spent Q3 and Q4 2013 acquiring five new patent portfolios with two yet to be disclosed or a monetizing campaign initiated:
Vantage Point Technologies relate to processor architecture, which enables the translation of virtual addresses into real addresses. Current defendants include: Samsung (OTC:SSNLF), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Panasonic (OTCPK:PCRFF), and Sharp (OTCPK:SHCAF). There are 27 defendants in total with the cases recently filed in November 2013 in East Texas. It is my opinion that a handful of companies will take the case to trial, which could yield sizeable damage amounts if infringement is proved and validity is maintained. Investors should be watchful for further court developments, such as a Markman hearing/opinion, as these could serve as an inflection point for the investment and portfolio. The cases are still at an early stage and a hearing has yet to be put on the calendar.
CRFD Research patents cover two technologies in mobile devices, In-session handoff and Mobile Web Content Transformation. In-session handoff involves an active session on one device being sent to another device to continue the session. A good example is the following DirecTV (DTV) video, where the video is being stopped and viewed on different devices throughout the house. Mobile Web Content Transformation transforms web content into formats compatible with destination devices over secure and unsecure connections. The alleged services include Amazon (NASDAQ:AMZN) CloudFront among others. There are 15 defendants in total with cases filed in 2014 in Delaware. Defendants include Netflix (NASDAQ:NFLX), Amazon, Verizon (NYSE:VZ), Comcast (NASDAQ:CMCSA), DirecTV, Dish Networks (NASDAQ:DISH), and Akamai (NASDAQ:AKAM).
E2E Processing patents cover process automation in the production and resource planning space. The patents cover a variety of spaces including the car industry, retail products, and commercial equipment along with a few others. There are four defendants currently with the cases filed in January 2014 in East Texas. Defendants include Cabela's (NYSE:CAB), Crocs (NASDAQ:CROX), Hallmark, and Nordstrom (NYSE:JWN).
The risks to MPG include the following: ongoing patent reform proposed in the senate. While I believe it will not affect MPG in a material fashion, it could be perceived by investors in a negative manner. MPG will also likely face inconsistent quarterly results as patent settlements historically are very difficult to predict the timing. Some quarters will have a high number and subsequently could have lower than expected quarters. Acacia (NASDAQ:ACTG) had this issue throughout 2013 and requires investors to be very patient with the investment. MPG also relies on litigation as part of their business model. There can be delays, adverse rulings, and infringement not found or damage awards that do not meet expectations.
In conclusion, the new IP assets present an under-covered and under-valued opportunity that could provide investors with strong returns as the cases continue through the legal system and either settle or tried in court. The company has strong shareholders in Erich Spangenberg (IPNav) and Jeff Feinberg and strong insider ownership by the CEO. With only 5.5 million shares outstanding and 7.5 million shares fully diluted I believe Marathon Patent Group has plenty of room to grow and has considerable upside throughout the rest of 2014 and into 2015.
Disclosure: I am long MARA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article covers a stock trading with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.