Update: Acacia Research Earnings Show A Strong Improvement In Sales And Adjusted Earnings

| About: Acacia Research (ACTG)


ACTG’s quarterly sales sharply rebound but still trail for the first half of 2014. Non-GAAP EPS rises, but GAAP loss remains unchanged. Dividend remains unchanged at a 2.8% yield.

My turnaround long thesis is working out well so far for a ~16% gain in 8 months, but ACTG price was volatile, as expected.

I reiterate my long thesis as well as the $19 target price. However, the stock remains a very volatile and speculative investment.

Acacia Research (NASDAQ:ACTG), a small-cap patent mass aggregator, reported more than double revenues of ~$50.1M for the second quarter compared to last year. This is a strong improvement over the weak previous quarter, when the company reported just $12.5M sales. Smoother trends over the trailing two and four quarters still show a significant Y/Y sales decline. Sales for the first half of this year are at $62.5M, 40% down from the same period last year. Even the $94M revenues for the trailing 12-month period are well below any of the past four years. Therefore, sales in the upcoming few quarters will be crucial in giving investors more visibility as to whether Acacia is able to maintain past sales levels or even increase them.

GAAP net loss in the second quarter of 2014 was ~$13M, or $0.27 per diluted share, virtually the same as GAAP net loss of $0.26 per share in the same quarter last year. Non-GAAP earnings improved significantly, reaching ~$7.8M, or $0.16 per share, versus a loss of ~$2.7M, or $0.06 per share a year ago. Acacia also continued to invest in its patent portfolio by acquiring patents related to high-speed, digital display interface technology during the quarter.

The higher quarterly sales were delivered on a significantly smaller number of deals, so the revenue per deal is increasing. This adds efficiency on one hand, but also increases the sales lumpiness. So, the very high stock price volatility can be expected to continue. Despite this fact, I reiterate my long thesis and the $19 price target, as patent litigation laws and regulations remain complicated and Acacia research services will still be needed. However, ACTG is a highly speculative stock even within the small-cap universe of stocks.

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