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InterDigital, A Case For A Turnaround

Mar. 06, 2018 3:25 PM ETInterDigital, Inc. (IDCC)4 Comments


  • The 2017 was a year of revenue contraction, with only the LG agreement signed at the end of the year.
  • Management was able to control its costs and expenses and delivered strong profitability and cash flow as well.
  • Despite the inconsistencies in revenues, the company has grown an average of 20% year over year.

InterDigital, Inc. (NASDAQ:IDCC) presented its results for the fourth quarter of 2017 and seems that the numbers have generated opposite reactions in the market and also some mixed movements in the price of the shares after the release. Revenues for the period were $205.3 million, which means a decrease of 25% from the same period last year, although it represents an increase of 111% from the previous quarter. For the whole year, the 2017 delivered a total of $512 million in revenue, falling a 22% from the 2016.

While these somewhat inconsistent results are nothing new for the company, this is kind of problem in which executives are trying to amend for some time but that until now, they have not yet been able to achieve. Overall, InterDigital looks to be performing well at the eyes of the CEO Bill Merritt, who has described the quarter and the full year as "very strong" since the operational costs have been controlled, the profitability is really healthy, and the cash flow is stable.

IDCC revenue growt

Source: Data extracted from filings.

There is a simple reason why the company has reported these ups and downs over the past 10 years, and it's inherent to the revenue source. In fact, InterDigital is running over cycles of two years, where in one year the company reports exceptional revenue growth while in the next one falls short, although on average, revenue has grown at 20% year over year in the past eight years.

By taking a closer look at the revenue source, is easy to spot what is causing these jumps from quarter to quarter. On one hand, we can see that the patent license agreements from InterDigital are structured mostly on a royalty-bearing basis, and others are structured on a paid-up basis or a combination thereof. Regardless

ChartIDCC Price to Book Value data by YCharts

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