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Justin Giles
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I have been investing in the stock market for a number of years now. I invest mostly in value and growth stocks. My financial goal in life is to always have my money working for me. Follow me on StockTwits -----> JustinGiles Follow me on Twitter -------> JustinGiles22
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  • Why I'm Buying More Shares Of Vringo 6 comments
    Mar 1, 2013 7:40 PM | about stocks: VRNG

    On Monday, I read an article from the Motley Fool (Is Now The Time to by Vringo) which talked about why Vringo (NASDAQ:VRNG) is a bad investment and why investors should stay clear of it. I on the other hand completely disagree and would like to explain why I'm buying more shares of Vringo at these levels. I've previously made cases as to why Vringo is a good investment in the linked articles hereand here.

    The article which went over some of Vringo's financials, was missing some bits and pieces to it. The article touched only on some of Vringo's financials while leaving several key areas out. Yes its true that Vringo is a video ringtone business, but there's a lot more to it than that. Most shareholders are buying and holding because of one thing. That is of course of the pending lawsuits against Google (NASDAQ:GOOG), ZTE, Microsoft (NASDAQ:MSFT) and future lawsuits to come.

    The article implied that Vringo jumped 300-400% last year because of its ringtone business. This is a classic example of why it's necessary for investors to do their own due diligence so they are not misinformed. Today I would just like to clear up some misinformation and explain my reasoning's for buying more shares of Vringo.

    Investors should know that Vringo and Innovate/Protect mergedlast year to help protect and profit from the patents and patent portfolios they own. The Markman hearing, secondary offerings as well as Mark Cuban's stake in the Vringo are the main reasons that propelled Vringo to the higher levels it achieved last year. Certainly not because of its ringtone business.

    Vringo's Fundamentals

    The article stated, "...The amount of red on the books suggests that Vringo's financial structure is much more flimsy than its shiny". What the article did not include was the cash on hand as well as the value of Vringo's patents of its portfolio. Leaving out important information such as can be costly. So let's look at Vringo's fundamentals to see where they stand.

    Cash In Bank:

    $60 Million

    Debt:

    None

    Patent Portfolio:

    Vringo's Patents +$22 Million (Nokia Portfolio)

    Ringtones:

    $266K Revenue

    EPS:

    (3Q) EPS -0.06 vs. (2Q) EPS of -0.36

    *Data From Vringo's 3Q Results

    Do these results seem flimsy to you? Yes earnings per share from the prior two quarters are still negative however, most companies would be ecstatic to be debt free as Vringo now is. Looking at Vringo's earnings per share [EPS] last quarter you can see the major improvement that is happening from Q2 to Q3.

    Now looking at Vringo on a purely cash basis without applying any earning multiples or ratio's, Vringo should be valued at no less than $1 per share.

    82.26 million [Cash] / 82.2 million [Shares] = $1.00

    This is a very conservative figure since I did not even add in the price of Vringo's current patents which they own. We will find out how much those patents are worth (possibly hundreds of millions) once post trial motions are finalized against Google. Also Nokiareceives a 35% cut in revenue that Vringo makes off its patents, so it is actually worth a lot more than $22 million that Vringo paid for it.

    What's Coming Vringo's Way

    On November 6, 2012, the jury unanimously returned a verdict award for Vringo amounting to $30.5 million in respect to past damages by the defendants' infringements commencing from September 15, 2011.

    It was also confirmed that Vringo would also be compensated by Google, with a running royalty rate of 3.5% through 2016. Estimates have royalties in the range of $635 million that Vringo would be receiving.

    During post motions stage of the trial, Vringo provided its stance on the past damages figures (Rule 59). This is a motion for a new trial on the dollar amount of past damages. Vringo is seeking $118 million in past damages that accrued since September 15, 2011. So how much money all together is this for Vringo? Lets break it down and take a look.

    How The Scenario's Could Play Out For Vringo

    Scenario 1) Nothing changes. Vringo receives the 2.9% in past damages ($30.5 million) from the defendants and a 3.5% royalty rate through 2016 from Google. So how much in royalty payments will that be? Going off of Google's past growth rates, Google could see total ad revenues climb upwards of $194 billion through 2016. These numbers add up to $635 million in royalties in which Vringo would receive over the next four years. On a per quarter basis that would come out to roughly $40 million per quarter.

     

    Past Damages

    $30.5 Million

    Royalties (3.5%)

    Total

    Google

    $15,800,000+

    +635,000,000

    =$665,500,000

    Other Defendants

    $14,700,000+

      

    Vringo has $60 Million in cash with no debt. Add in the $665.5 million it will receive from the defendants & Google's royalties and that adds up to over $725.5 million dollars by 2016. Divide Vringo's 82.2 million shares (common stock) and you get $8.82 cash per share.

    Scenario 2) Vringo receives the 3.5% royalty rate as well as the $118 million it sought in past damages from the defendants.

     

    Past Damages

    ($118 Million)

    Royalties
    (3.5%)

    Total

    Google

    $103,300,000+

    +635,000,000

    =$753,000,000

    Other Defendants

    $14,700,000+

      

    Again, Vringo has $60 Million in cash with no debt. Add in the $753 million it will receive from the defendants & Google's royalties and that adds up to over $813 million by 2016. Divide Vringo's 82.2 million shares (common stock) and you get $9.89 cash per share.

    Conclusion

    As you can see from the scenario's above, Vringo is not financial hindered as some say they are. During last quarters earnings report, Vringo's management reaffirmed it by saying that its $60 million in cash would be sufficient to support its operations and to allow timely execution of its current business plan.

    Post trial motions are winding down to determine the final outcome of Vringo (David) vs. Google (Goliath). Remember the jury unanimously ruled in favor of Vringo, so it is unlikely that the judge would go against that.

    Vringo still has pending suits against Microsoft and ZTE Corp. Last Thursday Vringo stated in its ZTE case, "In absence of an agreed settlement, a trial on the first asserted patent is scheduled on September 24, 2013." With the stock closing at $3.04 Thursday, I feel Vringo is trading extremely low at this point and not reflecting its current and future worth. Plus I haven't even added in the value of the 500 patents (which is really more than $22 million) that Vringo acquired from Nokia.

    Investors are reminded that this article should be considered general information and to make sure they do their own proper due diligence with regard to the stocks mentioned in this article. Have a great trading day and I look forward to all of your helpful comments and insight.

    Disclosure: I am long VRNG.

    Stocks: VRNG
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Comments (6)
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  • What its worth
    , contributor
    Comments (22) | Send Message
     
    Great overview Justin!
    Factual and to the point.
    Best breakdown I've seen on Vrng.
    Do you have approx time on RR ruling?
    2 Mar 2013, 03:13 PM Reply Like
  • Justin Giles
    , contributor
    Comments (1526) | Send Message
     
    Author’s reply » What its worth,
    Thanks! This trial has been crazy and very confusing for most, that is why I try and break it down into terms that we all can understand and be better informed about VRNG.
    2 Mar 2013, 03:21 PM Reply Like
  • jsIRA
    , contributor
    Comments (2478) | Send Message
     
    The reason why stock price is so low is because of uncertainty on the trial.

     

    How long VRNG will get any money from Google, how much it will eventually get? The market is taking the worst case now.

     

    I am long as always but I only put small portion of my money into this stock as there many hot stocks to invest right now such as XIN, YY, VIPS, UNXL, RDN, MTG, ZNGA, just name a few. Time is money.

     

    If the case drags further few more months, this will become dead money.
    3 Mar 2013, 01:58 PM Reply Like
  • Justin Giles
    , contributor
    Comments (1526) | Send Message
     
    Author’s reply » James,

     

    I agree that the market is taking the worst case scenario approach right now. Vringo is trading lower than when it was with all of the rulings, hearings and secondary offerings that have taken place.
    3 Mar 2013, 02:36 PM Reply Like
  • SaltyDog62
    , contributor
    Comments (708) | Send Message
     
    Hope of future royalties, no debt and a paltry income of 266k DO NOT make this a stock to own!!! One could have made more money buying and holding CVX over 2-3 years.
    22 May 2013, 06:19 AM Reply Like
  • Justin Giles
    , contributor
    Comments (1526) | Send Message
     
    Author’s reply » We'll have to see how things play out. Until then, saying this is a bad investment is a bit over the top. Vringo gained over 200% last year. Not a bad return for investors.
    22 May 2013, 09:45 AM Reply Like
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