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Blue Calypso Is An Overlooked And Undervalued IP Play With Powerful Near-Term Catalysts

|Includes: Blue Calypso, Inc. (BCYP), GRPN, IZEA, PRKR, YELP

Blue Calypso (BCYP) Highlights

  • IP-play with potential settlements far exceeding $60M
  • Represented on contingency by Fish and Richardson, the #1 patent law firm in the country by US News
  • Promising core business growing at over 100% year over year
  • Catalysts including lifting of stay agreement, Markman hearing, future case filings, ending dilution, and going EBITDA positive
  • Substantially undervalued at $33M

I started following Blue Calypso in 2013 after reading about the company as a potential intellectual-property 10-bagger on the EDVA Patent Blog. The company gained attention from the IP-investing community, but after delays and a lot of dilution, it seems to have been completely forgotten. I believe at the current share price it is extremely attractive from a risk-reward perspective, and see multiple catalysts over the next six months.

Blue Calypso, founded by entrepreneur Andrew Levi, went public in 2011. However, Levi has been creating the company's patent portfolio for over a decade. This is not a Parkervision-esque patent troll; Blue Calypso is a real, growing business with a comprehensive set of patents.

The company's primary patents are centered around the incentivized peer-to-peer distribution of advertisements. In other words, an advertiser sends a promotion to its customer list, offering to give each customer a coupon in return for sending a targeted advertisement to their friends. This can be completed mobile to mobile or via social media. This takes advantage of the extremely high engagement rates generated by advertisements endorsed by peers.

It's clear that there are many companies that are in some way infringing on these patents. Blue Calypso filed complaints against MyLikes, LivingSocial, Groupon, Foursquare, Yelp, and IZEA. So far, the company has reached settlements with the first two companies. The complaint that has the greatest monetization potential is against Groupon.

Groupon filed for a PTAB review of Blue Calypso's patents. The PTAB offered one of the most overwhelmingly positive decisions in its history, granting the majority of the claims across six patents, although rejecting one of the less important patents entirely. The patents are each similar and reinforce each other, and the surviving claims give Blue Calypso strong footing in the remaining hearings.

The companies entered a mutually-agreed-upon stay pending the PTAB results, and while Groupon is dragging its feet once again, I expect the judge to lift it soon. This is a potential catalyst for the share price.

Once the stay is lifted, the hearings will continue under an accelerated schedule. I expect a Markman as early as this summer. A favorable Markman is likely given the strength of the PTAB review, and will likely move the stock higher.

I'm not a lawyer, but have spent an extensive amount of time reviewing the company's patents, as well as those of other intellectual-property plays, and have strong confidence. I don't expect you to take my unqualified word for it. Take that of Fish and Richardson. The law firm, which was ranked #1 in patent litigation in the country took the case on contingency. This is commonplace only for high probability cases, typically with payoffs well in excess of $50m.

Groupon's entire business model was built on incentivized peer-to-peer distribution of advertisements. Ignoring any potential settlement for past revenues, even just a 2% royalty settlement, which is low for this type of situation, would yield over $60M versus the current market cap of $33M.

A major factor in the company's share price decline over the last 18 months has been dilution. After the CEO incentivized convertible-holders to exercise early to get the dilution out of the way and clean up the balance sheet, Blue Calypso is finally debt (and mostly dilution) free.

Explosive growth in Blue Calypso's core business, a cleaned up balance sheet, going EBITDA positive for the first time in 2015, royalties from previous settlements, potential wins against Groupon and its co-defendants, probable future complaint filings, and increasing attention from investors will drive the stock higher over the next 6-12 months. I believe this will prove very rewarding for shareholders, myself included. It's rare to find a company with what Charlie Munger might call a "Lollapalooza" of catalysts, but I believe Blue Calypso fits the description.

Disclosure: The author is long BCYP.

Additional disclosure: I am long BCYP and will likely accumulate more shares