RPX Corp (NASDAQ:RPXC)

CAPS Rating: 5 out of 5

Recs

4
Player Avatar BuffettJunior1 (97.47) Submitted: 8/9/2012 11:31:55 AM : Outperform Start Price: $11.64 RPXC Score: -9.41

RPX Corp. is a fast growing company in a niche industry: patent defense. The company provides a subscription-based patent risk management solution that facilitates more efficient exchanges of value between owners and users of patents compared to transactions driven by actual or threatened litigation. The company's fundamentals are outstanding, which is surprising for such a young company – (founded in 2008 and went public in May of 2011). As of the most recent quarter (6/30/12) the company had approximately $220 million in cash and investments on hand versus less than $5 million in debt (including operating leases). The company is also growing at an astonishing rate. For example, in 2011 revenue increased by over 62% from the year before. While it’s impossible for any company to continue to grow at a rate that high for any length of time, I don’t think it would be crazy to assume that this company can continue growing in the 15% to 20% range for a very long time (since this is a young industry with lots of growth potential). The company is also profitable (based on GAAP earnings); however, the company’s true earnings or “owner earnings” are negative. The reason why owner earnings are negative is because the company is spending a ton of money on “the acquisition of patent assets.” For example the company spent over $101 million on acquiring patent assets in 2011 alone, almost 7 times as much as its main competitor - Acacia Research Corporation (ACTG). I believe this will help RPX in the long run, because the company will have a larger portfolio of patents which will attract more customers.I also believe that RPX is developing somewhat of a competitive advantage or “economic moat.” RPX’s business model has a “network effect,” because as the company adds new clients it generates new subscription fees that can be used to fund additional acquisitions of patent assets. These acquisitions enable RPX to add new clients and to deliver greater value to the company’s existing clients.Kleiner Perkins Caufield & Byers (KPCB) one of the most successful venture capital firms in the world (paid $25 million for a 20% stake in Google in 1999) owns about 15.21% of the shares outstanding. This should give investors even more confidence to invest in RPX.Overall, I believe RPX is an outstanding business with lots of growth potential and currently selling (trading) at a very low valuation. Those who are patient will be greatly rewarded by investing in this stock.

Report this Post 8 Replies
Member Avatar dwKapital (61.99) Submitted: 8/9/2012 6:12:28 PM
Recs: 0

Aren't earnings for a company like this sort of inconsistent by nature, depending on court cases they can win?

Member Avatar BuffettJunior1 (97.47) Submitted: 8/10/2012 12:48:49 AM
Recs: 0

No, not this one. Since RPX employs a subscription-based business model the company's earnings and revenue should be relatively steady.

Member Avatar TSIF (99.96) Submitted: 8/27/2012 2:00:49 PM
Recs: 1

Nice review, you made the "front page".
http://www.fool.com/investing/general/2012/08/24/our-top-stock-idea.aspx?source=itxsitmot0000001&lidx=1
This puts the article on the newsfeed, such as the Yahoo Finance board for this stock.

Sometimes when I make the front page on a downthumb, I have to 'defend' myself in the comment section from pumpers and conviction bias posters. Usually, on an upthumb, however, it rarely gets as much notice, but usualy by people agreeing.

Keep up the good work!!!

Member Avatar TMFBlacknGold (98.89) Submitted: 9/25/2012 7:48:23 PM
Recs: 1

One reason this may not pan out long-term: patent agents. Dozens upon dozens of companies are starting to hire patent agents over patent lawyers. They are cheaper (never went to law school) and are more useful generally because:
-the U.S. PTO bar exam is good in all 50 states
-they are required to be technical experts (engineers, scientists, etc)

If this company employs patent agents instead of patent lawyers, then this argument only cements your bullishness. And of course, the acceptance of patent agents is directly tied to how many people actually decide to become one. The trend is growing rapidly, however. I should know as I was accepted to the first ever class of the Master of Patent Law Program at Notre Dame for Fall 2012. Check it out:

http://patentlaw.nd.edu/

Just a little rain on your parade. Can't argue with the fundamentals, but just a possible blind-side risk. Enjoy!

Member Avatar BuffettJunior1 (97.47) Submitted: 9/26/2012 7:14:35 PM
Recs: 0

That's an interesting trend, thanks for pointing it out. However, I don't think it will hurt RPXC in the long run. The only thing that can happen is that RPXC begins hiring more patent agents than patent lawyers. And since they are cheaper than patent lawyers it will only benefit RPXC.

You said that you were currently studying to become a patent agent, how is that coming along? What industry will you specialize in?

Member Avatar TMFBlacknGold (98.89) Submitted: 9/27/2012 11:46:10 AM
Recs: 1

Yeah, I think RPXC will only benefit from the trend as well. As long as they can contract out their services cheaper than a company can hire their own patent agents it will work out in RXPC's favor. The risk would be the added benefit a patent agent brings to an individual company, which RPXC may not be able to provide. Again, there is a shortage of patent agents so this risk is currently small.

I was *accepted* and planned on using patent agent status with my undergrad degree in bioprocess engineering (SZYM, AMRS, CDXS, etc), but I had to put off plans to take care of a family emergency for the time being. That aside, I knew virtually nothing about the program - or the trend - until I stumbled across the program. Interesting indeed!

Member Avatar treasureoaks (37.75) Submitted: 10/10/2012 11:24:53 AM
Recs: 1

Sorry to switch gears but,
RPX to Report Third Quarter 2012 Financial Results on October 30, 2012

BuffetJunior1 what are your expectations, can you share any of your thoughts?

Member Avatar BuffettJunior1 (97.47) Submitted: 10/10/2012 5:33:10 PM
Recs: 1

This is a long-term buy and hold for me. To be honest I hope it’s a bad quarter so the price drops and I can buy more shares.

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