Please ensure Javascript is enabled for purposes of website accessibility

Can RPX Keep Its Earnings From Shrinking?

By Dan Caplinger - Feb 5, 2016 at 10:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite a world-class slate of clients, the patent-protection specialist is struggling to keep its bottom line moving in the right direction.

Image source: RPX.

Patent trolls are an unfortunate fact of life for tech companies, but RPX (RPXC) wants to make things easier for its clients. By taking proactive measures to prevent and defend against patent claims, RPX has brought some big-name companies into its fold, but coming into Tuesday's fourth-quarter financial report, investors believe that RPX is likely to see its earnings shrink from year-ago levels. Unless RPX can establish its ability to keep its bottom line moving higher, it could be hard for the stock to follow suit. Let's take a closer look at what investors should focus on from RPX this quarter.

Stats on RPX

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$69.21 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance.

What's next for RPX earnings?
In recent months, analysts have generally been neutral on RPX earnings, cutting fourth-quarter estimates by $0.01 per share but raising their first-quarter projections by the same penny. The stock has been under pressure, falling 18% since late October.

RPX's third-quarter earnings report gave investors a good sense of the challenges that the patent company has dealt with lately. Growth slowed dramatically from past quarters, with revenue climbing just 4%. Adjusted net income came in much weaker, falling by more than 25% and producing similar declines in earnings per share. RPX continued to see new clients come in, boosting its client count to 245 and spending more on patent assets in order to build out its overall portfolio. Yet RPX's guidance wasn't particularly strong going forward, and some investors seem to remain skeptical about the company's overall strategy in trying to reduce patent litigation risk.

To foster growth, RPX has made a number of moves in recent months. The company released a new type of insurance that it calls volatility risk coverage, which is essentially litigation insurance for companies that want to control their patent litigation costs. RPX hopes that the insurance product will appeal to companies that want to budget and plan for anticipated expenses related to patent claims but that face ups and downs in the number of claims made and the costs involved in handling them.

RPX has also put substantial amounts of money behind its growth efforts, announcing in December that it would acquire discovery management specialist Inventus Solutions for $232 million in cash. By adding services that will assist corporate legal departments handle the internal workload involved in dealing with patent litigation, RPX believes it can be a complete solution provider for more of its clients and enable some customers to turn over much of the responsibility for putting together effective responses to lawsuits.

Finally, RPX continues to build out its portfolio of patent properties, saying in December that it would spend more than $100 million to obtain licensing rights from patent-licensing specialist Round Rock Research LLC for more than 20 of its clients. Round Rock has had a close relationship with memory chip manufacturer Micron Technology (MU 3.95%), and it holds a number of Micron patents related to semiconductor manufacturing and circuit technology. By bringing together clients and patent owners, RPX seeks to avoid litigation entirely and facilitate agreements in a way that will benefit everyone -- and earn RPX a fee in the process.

In the RPX earnings report, investors need to look beyond the numbers to see if the company has successfully built a long-term business model that will work to reduce the exposure of its clients to patent claims. Unless the efforts that RPX makes survive eventual battle-testing, what started out as a promising idea could quickly lose its value for clients and investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Micron Technology, Inc. Stock Quote
Micron Technology, Inc.
$58.44 (3.95%) $2.22
RPX Corporation Stock Quote
RPX Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.