Cowen Begins Coverage on RPX Corp. (RPXC) at Outperform; Confident in Business Transition/Model

Cowen and Company starts RPX Corp. (Nasdaq: RPXC) at Outperform with a price target of $20.

Analyst Timothy Arcuri sees RPX being in transition mode from high-growth concept to more stable clearinghouse in the illiquid and opaque IPR market. The company realizes a substantial portion of revenue from subscription-based "defensive patent aggregation," which allows most clients to vest into perpetual licenses to its patent assets while providing favorable ROI on risk mitigation. Unlike pure licensing companies or NPEs, the value of the company is in the business service rather than the patent portfolio; thus, while there are no real comps, the company is essentially providing an outsourced business process/service the analyst said.

Arcuri continued, The proliferation of technology adoption by companies across a wide array of end mkts has expanded the envelope of RPX's prospective customer base. At the same time, many of the largest obvious customers are now part of the network meaning growth will likely slow and become more predicated upon new fee-related or insurance products, both of which remain nascent. Additionally, the model is highly capital intensive w/growth, in the next few years, still keyed to acquiring more patent assets/rights each year. The analyst is modeling free cash flow generation of about $60 million per year over the next two years.

Lastly, the NPEs in many ways create the problem that RPXC solves, so any big legislative change that makes assertion more challenging would have a negative effect. However, litigation seems more targeted at transparency and as long as patents continue to convey an asset, an open market solution like RPXC seems much more likely than a legislative solution, the analyst commented.

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