In my view, RPX Corporation (RPXC) is the one must-own technology related stocks. Put simply: RPX is a high-growth stock in a new and exciting industry. The RPX business model provides a growing and vital component to modern business enterprises: patent risk management solutions. Businesses need patent solutions to develop their business models, plan overseas growth and design new products. Patents are a core asset to many businesses.
Based in San Francisco, Calif., RPXC acquires patent rights and licenses them to clients on a renewal basis. RPXC monetizes patent rights by selling renewal subscriptions to clients that need the patents for defensive purposes.
RPX provides patent solutions so companies can avoid expensive legal and time-consuming patent litigation. Stock investors recognize the inherent patent risks when a company is sued for patent infringement. For example, Rambus Inc. (RMBS) has been actively involved in suing because management believes competitors infringed upon Rambus patents. Patents are the cornerstone of today's business enterprise. Rambus has fought in the courtrooms for years to defend its patents. Rambus management and shareholders know the patent ramifications as they fight off the Micron Technology (MU) and Hynix Semiconductor (HXSCF.PK). RPX's business model is focused upon mitigating patent litigation. RPX's patents are not exclusive. The patent portfolio benefits all RPX clients.
RPX Balance Sheet:
RPX significantly paid down its debt levels with the IPO proceeds. This permits the luxury of a clean balance sheet to acquire new and enticing third party patent portfolios.
RPX management, thru December 2010, has spent $250-million to acquire patent assets. These assets are valued in intrinsic terms regarding the potential negation of patent suits for customers in the future.
RPX Balance Sheet and Growth Prospects:
RPX has experienced significant revenue growth. RPX 2008 revenue was $.8-million; 2009 revenue was $32.8-million; 2010 revenue was $94.9-million. RPX profitability was initially achieved in 2009 with $1.9-million. RPX achieved 2010 profits of $13.9-million.
RPX is expected to reveal 2011 1st quarter financial results on May 25th. Revenue is anticipated at a $34.2-million figure with an earnings of about $12-million. This is approximately 100% year-over-year in earnings.
There has been a significant influx of entities who's only purpose is to acquire patents. These companies are referred to as non-practicing entities (NPEs). Their existence presents competition and awareness of the existing patents available for negotiation and purchase. Operating companies must exist with the NPEs demanding value for their patent holdings. Enter RPX to provide counsel and expertise in the patent market place.
Many companies have their own patent counsel. This cost can be expensive and unwieldy. RPX provides patent risk management counsel and feedback. The costs fluctuate annually. Private and publicly traded companies need inside counsel or third party counsel who can review the merits of patent ownership or patent risk.
RPX Customer Base:
As of December 31st, 2010, RPX had 72-customers. This was strong growth from the March 31st, 2010 period, in which RPX had 51-customers. The March 31st quarter is anticipated to reveal a total of 81-customers. Customers include technology companies such as Cisco (CSCO), Google (GOOG), Samsung, Sony (SNE), and Verizon (VZ) to name a few. These bluest of the blue chip technology companies require patent awareness, patent protection, and involvement by a third party patent expert. Because the RPX business model permits subscription plans to be split amongst customers, the cost is reduced from what companies would incur if left to their own devices.
RPX Stake Holders and Management:
RPX has an exquisite blue chip roster of major insider holders: Index Ventures, affiliates of Charles River Ventures, and KPCB Holdings. These companies are respected parties in the patent-knowledge industry.
RPX is led by a deep and talented management team. John A. Amster is the CEO.
This is a humbling admittance. Please bear with me. I am a Luddite. I have a self-awareness that allows me to readily admit my weaknesses. My goal is to find understandable business models. This means I do not buy conglomerates or $100-plus billion market cap companies. The law of big numbers reduces the chances for a big gain or identifying an undiscovered company.
The catalysts for owning this equity include many patent-oriented issues. RPX offers a new business model in the fairly new and growth-centric patent areas; the company offers a reoccurring subscription model, which cannot easily be duplicated by third parties; and management can reduce customer costs by first mover advantage as a publicly traded patent-centric enterprise.
My assessment is the profit margins should expand, revenues should grow significantly for years to come, and profits should increase to allow for significant 3rd party patent acquisitions. These issues will only heighten and increase the positive presence of RDX in the patent marketplace. A treasury to behold.
Disclosure: I am long RPXC.