- ParkerVision's loss of JMOL on infringement an enormous blow.
- ParkerVision stock now essentially worthless.
- $0.25 per share price target based on option value.
On June 20th, Judge Dalton issued an order on the Post Trial Motions in the ParkerVision (NASDAQ:PRKR) vs. Qualcomm (NASDAQ:QCOM) hearing. As part of these post trial motions, he GRANTED Qualcomm's motion for Judgment as a Matter of Law (JMOL) for a new trial regarding non-infringement. In doing so, Judge Dalton stripped ParkerVision of the jury award and royalty rate they had been awarded. While this devastating news caused a precipitous drop in ParkerVision's stock, we believe that the stock is still tremendously overvalued.
At last night's closing price of $1.85 and 98.5 million shares outstanding, ParkerVision carries a market capitalization of $182 million. While this is significantly less than ParkerVision's prior market capitalization of approximately $500 million, there is now nothing to support the current market capitalization. The company produces no revenue and despite hiring 3LP over 18 months ago to work on licensing deals, none have been signed. Furthermore, the likelihood of a licensing deal being signed is now extremely low because ParkerVision just lost whatever leverage they may have had in negotiations as a result of Judge Dalton tossing the first case and the IPRs being filed.
We believe that the only reason ParkerVision stock still trades above $1 is a large fundamental misunderstanding by shareholders. This misunderstanding is highlighted in ParkerVision's press release when they state:
While we are pleased that the court upheld the jury's decision that the patents are valid, we are obviously disappointed with the District Court's ruling that judgment be entered for Qualcomm on non-infringement.
To be clear, the Judge did NOT find the patents valid. He simply found insufficient evidence to find them invalid. If you read the IPRs that were filed by Mike Farmwald and RPX and discussed within this SeekingAlpha article (here), you will quickly realize that the validity of these patents is highly questionable given the vast amount of prior art that an expert in the field of RF found. The large amount of prior art should lead to the PTAB determining that the patents are invalid. Even if the patents are ultimately found to be valid, we see no value in a valid patent that no one infringes, which is the current status following the JMOL from Judge Dalton.
Shareholders seem to view the lawsuit against Qualcomm and HTC (OTC:HTCCY) as another source of potential value. The first thing worth noting about this lawsuit is that ParkerVision has not served Qualcomm or HTC yet. There are two ways that we know this lawsuit has not been served. First, when we look at the first lawsuit, there is a certificate of service, but there is no certificate on the second lawsuit. Second, neither Qualcomm nor HTC have responded. Qualcomm and HTC need to respond to a lawsuit in 21 days, but that 21 days starts from the day they are served, so the lack of a response means that they have not been served. Even if Qualcomm and HTC do eventually get served, this new lawsuit is years away from being tried as Qualcomm and HTC will likely file IPRs against these patents. Keep in mind that ParkerVision is now filing a lawsuit on their second string patents. They would clearly use their best patents on the first case, so the patents in this new lawsuit were not even worth asserting in the first case. If Qualcomm wins the IPRs it is likely to file, then the lawsuit will be dismissed. Furthermore, ParkerVision will find it difficult to use the inflammatory emails from Qualcomm in the second lawsuit, because ParkerVision previously said these emails were about the energy sampling patents. It will now be impractical and lacking in credibility to claim the emails are about different patents. We find it hard to believe that a judge will allow this.
Bulls also seem to be misunderstanding the fact that an appeal could be devastating to ParkerVision. If ParkerVision appeals, Qualcomm gets to cross appeal. Therefore, it is possible ParkerVision ends up worse on appeal. This is because the Federal Circuit could find the patents invalid on appeal, especially with the IPRs in process. The Federal Circuit could also decide to toss the Markman. Therefore, an appeal is not a one-sided event where ParkerVision can only emerge victorious. In fact, ParkerVision risks losing a lot on an appeal.
The only thing that may be certain about the future for ParkerVision shareholders is that they will face further dilution. ParkerVision ended last quarter with $25.3 million in cash. They currently burn about $4 million in cash a quarter, but the cash burn is likely to rise as they appeal the first lawsuit, fight the IPRs, and defend themselves in the MaxTak lawsuit. The cash burn will further increase if ParkerVision ever serves Qualcomm and HTC to begin the second lawsuit. This means that ParkerVision has only a few more quarters before they need to raise capital again.
There is simply nothing concrete about ParkerVision that can justify a market cap of $182 million. In fact, we thought the stock was only worth a little over $200 million if Judge Dalton had found for ParkerVision in these JMOLs and ParkerVision won the appeals. Given this ruling from Judge Dalton, we believe ParkerVision stock should be valued at no more than $0.25 per share, which represents the option value that something good might happen in the future or that other gullible investors might be found. We cannot use normal valuation metrics such as revenue, earnings or EBITDA, or revenue because ParkerVision either has none or it is a negative. Therefore, the best we can do is estimate what hope is worth. Unfortunately, ParkerVision has never delivered on this hope in their over 20 years as a publicly traded company.