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Vringo Baseline Analysis

|Includes:FORM Holdings Corp. (FH)

Vringo, Inc. (VRNG), a company engaged in the development and monetization of intellectual property and mobile technologies, is continually becoming a diamond in the rough. In a industry where insults such as 'patent troll' and 'technology stealer' are repeatedly thrown back and forth Vringo has thus far shown a superior ability to navigate the volatile and often misunderstood business of technology acquisition, development, and licensing.

Considering the copious amounts of discussion regarding Vringo's business and potential valuation I have chosen to write this article to analyze the market sentiment, business developments, upcoming catalysts, and the potential of a short squeeze.

Sentiment and Fundamentals:

As can be surmised from previous articles such as: (1) Why Google Might Be Going to $0; (2) David Slays Goliath: Vringo Awarded Billion-Dollar Victory Over Google; and (3) GOOG)+Ruling,+Royalty+Rate+Set+at+6.5%25/9099793.html" target="_blank" rel="nofollow">Vringo (VRNG) Affirms Google (GOOG) Ruling; an enormous amount of emphasis has been put on Vringo's billion dollar victory over Google (GOOG).

However, as an individual who holds patents and got interested in Vringo due to their stellar patent enforcement activities and seasoned legal team it is my belief that the market is overly focused on the Google case and has not fully valued the numerous opportunities for additional and independent revenue.

As of writing this article, Vringo has over 500 patents, business agreement with Nokia and Microsoft, as well as numerous undisclosed licensing deals. It is expected that information regarding these licensing deals may be gleaned from the upcoming earnings release in early May. However, thus far the market has appeared to discount all of the deals and business developments that have not resulted in concrete and disclosed cash changing hands.

Current Undisclosed and Or Unvalued Business Developments:

Consolidating the past months of proceedings the following list is a consolidation of Vringo's business deals.

  • Infomedia Services Deal: Vringo reached a deal with Infomedia Services. Under the terms of the deal Vringo was able to sell many of its older and unused assets for a 8.25% stake in Infomedia Services which is on an impressive growth path. In 2013 Infomedia Services generated revenues of approximately US $20 million and boasted the management of over 750 million mobile engagements, 300 million portal sessions, 75 million billing transactions and over 5 million downloads.
  • ADT Settlement: On January 28th, 2014, Vringo reached a confidential agreement with ADT Corporation and its subsidiary, ADT LLC doing business as ADT Security Services. The agreement resolves litigation that was pending in the United States District Court for the Southern District of Florida.
  • TYCO Settlement: On April 28, 2014, Vringo Infrastructure, Inc., a wholly-owned subsidiary of Vringo, Inc., entered into a confidential agreement with Tyco Integrated Security, LLC to resolve litigation on mutually acceptable terms that was pending.
  • ZTE Developments: On April 28, 2014, Vringo and ZTE Corporation reached a mutual agreement to postpone pending litigation regarding the German part of European patent 1,212,919, which was previously scheduled to take place on April 30, 2014. This is in addition to the other ZTE proceedings in Australia as well as the injuction currentlybeing enforced in India against Indiamart.com a reseller of ZTE products.

Upcoming Catalysts:

Currently, there are a number of very important catalysts coming within the next month as well as a laundry list of additional events scheduled for years to come.

Google Appeals

On May 6th, 2014, Vringo is scheduled to argue in front of the CAFC in order to resolve a number of appellate issues within the Google case.

During this appeal Google is arguing infringement, patent validity, claim construction, and everything that went against them during Pre-trial. Vringo is expected to defend against Google's appeals as well as cross-appeal issues on laches and past damages.

While many people have quite diligently researched the timeframes for a formal CAFC order in the range of 30-180 days I do believe that the oral arguments as well as questions from the judges will shed invaluable light on the mindsets and opinions of the tenured justices.

In addition to the oral arguments in front of the CAFC, there are separate appeals within the works for: (1) Supplemental damages; (2) Pre-and-Post-Judgment interest; (3) Royalty rate; and (4) The alleged work around. With regards to these proceedings Vringo's consolidated brief is due on May 8th and Google's response will be due 14 days following Vringo's submission.

If history has proven anything it is that these court proceeding can be very volatile. Throughout the last two years simple court proceedings and even words from Judge Jackson has caused Vringo stock to swing up and down almost 50%. Due to Google's perceived arrogance I believe the CAFC will be inclined to quickly make up their minds on the more trivial decisions such as the work around, laches, and interest. Whether or not this can be decoded from the justices comments will remain to be seen.

ZTE Corporation

Throughout the litigation against ZTE Corporation Vringo has been quite resilient in putting enormous pressure on ZTE Corporation across multiple jurisdictions. To those of you who have been following Vringo has initiated suit against ZTE within Europe, India, and Australia.

While many of the international court documents have yet to be seen Vringo won a key victory by being granted an injunction against IndiaMart.com a global seller of ZTE products. I believe the decision of the High Court of New Delhi to grant a injunction against ZTE as well as police protection has given rise to more serious negotiations. It transpires from these proceedings that ZTE is being seriously damages by the injunction and this may or may not have led to the mutual agreement to postpone trial proceedings within Europe.

Considering the ambiguity of the postponement that has appeared to be conducted by bilateral discussions rather than court continuance proceedings I belief this is an indication that Vringo and ZTE are in discussions to resolve all of the pending litigation.

Should it be true, it also bears to reason that any additional proceedings, news, or settlement agreements could be derived on how other court deadlines are handled. For example. on May 6, 2014, there is a hearing in India against ZTE Corporation for their failure to comply with prior court orders given by the High Court of New Delhi as well as the injunction orders. If this court proceeding is also postponed or withdrawn it would give significant support to the theories that good faith and probable settlement discussions are taking place.

Short Interest:

Another particular topic of interest with regards to Vringo's stock on a more technical point of view is the current short interest.

For those of you who are new to short interest, according to Investopedia "Short interest is a market-sentiment indicator that tells whether investors think a stock's price is likely to fall." Within the last two day, according to ShortAnalytics Vringo's short interest has been steadily decreasing on unusual volume. This decrease give the indication that investors expect a continued rise of the stock.

According to NASDAQ short interest data as of the settlement on 04/15/2014 the total number of shares sold short is 20,171,992.

Furthermore, according to Vringo's 14A filing as of April 21st, 2014 there were 86,515,529 shares of common stock outstanding.

By way of some simple math, using both the number of shares outstanding and short interest one can calculate the following information:

  1. 23.31% of the current shares are sold short. (20,171,992 / 86,515,529)
  2. At the current share price of 4.07 the total monetary value of the short shares is $82,100,007.
  3. It will take roughly 13 days for all of the shorts to cover their current liabilities.

Due to the relatively high number of short shares, any positive news would probably lead to a rapid increase in share price which would likely lead to a short squeeze. Short squeezes result when short sellers cover their positions on a stock and generally results in an even larger increase in stock price.

Conclusion:

While patent plays as well as Vringo stock have historically proven to be volatile and unexpected it is my belief that at the current stock price and in specific consideration with the recent business developments Vringo offers superior risk reward potential.

Disclosure: I am long VRNG.

Stocks: FH