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Vringo (VRNG) Verdict Vs. Google (GOOG) Worth ~$500M; Expects Appeal - Maxim Group

November 7, 2012 9:59 AM EST Send to a Friend
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The only analyst that covers Vringo (NYSE: VRNG) weighed in after yesterday's important court victory against Google (Nasdaq: GOOG) and others.

Maxim Group's John Tinker estimates that the awarded 3.5% royalty on a going-forward basis could be worth ~$500M until April 2016. Also, amidst much confusion, the jury only awarded ~$30M in past damages, starting from the filing date in September 2011.

Tinker comments, "VRNG originally claimed $493M in damages going back six years; of these original damages claimed, $451M applied to GOOG. The jury awarded damages against GOOG of $15.8M (i.e. 3.5% of the total damages asked for). By contrast, the jury awarded $7.9M - 35% of the $22.7M in damages asked for- from AOL. This may be due to the jury asking the Judge about the amount of incremental revenues; the Judge did not provide a number and said to use best judgment. Similarly, the jury asked Judge Jackson if they could award a lump sum if they could not find a running rate. Whatever the math, the jury appears to have rejected the GOOG expert witness argument that royalties should not be paid, only a lump sum of $3-$5M. He did not come up with an alternative to I/P royalty estimate.

On a going forward basis, the jury awarded a 3.5% royalty rate on the 20% increase in revenue generated by GOOG et al. VRNG’s original claim was based on ~$14B increased revenues over the last six years at 3.5%, which generated $493M. Cutting that back to September 2011 reduced the amount of historic damages to about $118M. A similar revenue increase over the next four years – until 2016 (GOOG is still growing) – would suggest future royalties of ~$500M."

Tinker expects Google will apparel, which is a process that could take 12-15 months. He notes the process is confusing, with many numbers being bandied about. Google may even attempt a workaround similar to the games that DISH played with TIVO, he notes. Also it is possible that the Judge argues the $30M and extrapolates that number for the next four years and not the 3.5% royalty rate. In addition, an interest rate should be accrued, in our opinion.

Tinker is maintaining his Buy and price target of $10 on VRNG.

For an analyst ratings summary and ratings history on Vringo click here. For more ratings news on Vringo click here.

Shares of Vringo closed at $3.57 yesterday.




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