$PTNT: Net-Net with Hard to Value Patents

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$PTNT: Net-Net  with Hard to Value Patents


Internet Patents Corporation (PTNT) is a patent licensing company formed out of the remaining assets of Insweb (INSW). Insweb ran an insurance brokerage website, which Bankrate.com bought for $65 million in October 2011. That left a pile of cash, NOLs, and six e-commerce patents as INSW’s remaining assets. INSW decided to reorganize as an IP company, hoping to monetize their patents through licensing.


PTNT decided to pay out $39 million of the sale proceeds as a special dividend. That leaves PTNT with $34.5 million in cash against $930 thousand in total liabilities, for a net cash balance of $33.6 million. The current market cap with the stock at $3.87 is about $30 million. So PTNT is trading at a discount to net cash. Of course, that is probably justified given that PTNT has not yet produced any revenue from its IP licensing strategy.

There a few points that might make PTNT an interesting speculation:

  • In their Q1 press release, the company announced that they would look at issuing a second special dividend in 2013.
  • PTNT also guided to between $600 thousand and $700 thosuand in quarterly opex cash burn, or $2.4 to $2.8 million per year. The current stock price is discounting about a year and a half of cash burn at that rate. However, that guidance does not include any litigation expense the PTNT might incur in their attempt to monetize their patent rights, which could be substantial.
  • They have $222 million in NOLs, so if they do ever end up generating any income they probably won’t be paying taxes on it!
  • The CEO Enan owns 25% of the company and has earned a cash salary of $12 a year since 2006 (although his salary was raised to $300 thousand in 2011 presumably due to completing the Insweb sale), so he is more motivated to increase the value of the stock than to milk the company through his salary.
Although PTNT describe their patents in the 10-K it is probably impossible for a non-specialist to accurately assess their value. And given the discount to cash is not huge at the current stock price, there is not a tremendous margin of safety if PTNT spends a few years litigating to monetize their patents and comes up empty. Without any insight into their patent portfolio, PTNT remains a below net cash curiosity.
Disclosure: No position.

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