"A ten year window is not a bad thing...it means there are plenty of infringers and a successful biz model that extends well into the future....and you do want to sell this to somebody who can see that there is much more to come, don't you?"
A ten year time frame would be a disaster and would yield an abysmal share price.
Given that time frame the market would evaluate edig based on its financial strength, future growth over that ten year cycle as they do all on going corporations. Only in the first or second year would emotions enter into the pps which may be the best time to sell.
Let’s be generous and say 20 settlements per year at an average of 4 million each. This matches RPs statement of hundreds of millions, 20 per year times 4 million equals 80 million times ten years equals 800 million. A reasonable average made up of some large settlements and no doubt some very small amounts.
Net income would equal 48 million (60% of 80 million), since RP didn’t state if that amount was net to edig or the total value of the settlements. Using approximately 300 million outstanding shares, the earnings per share each year would calculate to $.16 At a PE of 10, the pps would equal $1.60. The PE could go to 15 and the resulting share price of $2.40.
In addition we must consider the use of the funds generated from the settlements. These funds may be utilized for product development and acquisitions. Using a net profit of 10% and applying that on Revenue of 480 million (to generate the same net of 48 million as the settlements), which is being very generous in the early years and perhaps high over the ten year time, the total income generated from operations and settlements would equal 96 million per year or $.32 per share and using a PE of 10 the pps equals $3.20 or $4.80 using a PE of 15. These calculations don’t include federal taxes and would further diminish the earnings per share.
The filings must be expedited and hopefully we will see a minimum of 40 filed per year. This would double the earnings as shown above and the pps. There is also the possibility that given a favorable markman ruling we will see a large number of infringers settle before any filing which would also lessen the total time frame for the 184+ potential infringers and keep expenses low for all involved.
Lets hope that DMs strategy is based on a short time period, 2-5 years, I don’t think they would want to drag th is venture out to ten years.
A couple of major points should be considered. Like most other companies, the market would determine the share price based on the fundamentals. Also the emotional aspect to ultimately project 180+ settlements would generate a spike in the pps as 10 or 20 or 40 settlements become a reality. Past that point, the the analysts come into play.
