The stock has weakened even further, and seems to be going into another leg of selling. Going below $15 is not a good sign, and it needs to bounce immediately, and with force, to turn the tide. Fluctuations in earnings have eroded the faith of investors, and it has delivered a negative surprise in three quarters in a row. The unpredictability has made the investors wary. Excessive dependence on a few licensees for revenues makes the risk high. While this could be common in companies of this size, it is imperative for Acacia to diversify its revenue stream to stabilize things. Lawsuit outcomes have an associated unpredictability so it is difficult to base an investment solely on that. Many companies in the sector are making efforts to diversify the IPR portfolio to get regular inflow through licensing. For example Marathon Patents Group (MARA) is attempting a balance between diversified licensing revenue stream and enforcement through litigation. For Acacia, the decline from $45 to $15 is primarily based on fundamentals. Zacks has a strong sell rating and the full year EPS estimate for 2013 and 2014 is 33 cents and $1.16 respectively. This indicates that there may be some pain in the offing. The counter lawsuit by Microsoft (MSFT) does not help matters. Microsoft accused Acacia of claiming payments based on litigation tactics instead of demanding payments based on the actual valuation of its patents. Thankfully, the cash position of the company is good, and there is no debt on books. However, the recent repurchase program will surely lead to some depletion, and it remains to be seen whether it will have any positive impact on the sentiments. The repurchase program is for purchase in the aggregate up to $70 million of its common stock through the period ending May 14, 2014.
The issue is what are the future earnings, not whether they are smooth. Mgmt has added valuable IP in last 18 months. They say several of these portfolios will bring $100+ million each. Acacia gets half of the net proceeds. In a few cases they advanced some of their partner's half on the front end, but otherwise Acacia's half interest required no capital outlay. Monetizing this kind of portfolio takes time because the Courts are slow and some parties will delay. But eventually Acacia will get paid. Acacia is now seeking additional large portfolios in Japan, the energy space, med tech, wireless, auto industries, etc. Watch for these. As they accumulate there will be a growing number of large portfolios. By then the earnings will show up in a big, and even smoother way. While wait we get 3.4% at this share price. When the payoff comes watch that dividend grow nicely.