Thursday, 5 May 2011

RPX flotation: brilliant investment or bubble waiting to burst?

I had the pleasure of a long discussion with Intellectual Asset Management (IAM) editor Joff Wild over lunch yesterday, in the course of which we discussed the initial public offering of RPX.   I agreed with him that the offer was likely to be well-subscribed, but expressed my doubts as to whether there is a commercial future for a business plan based on defensive patent aggregation -- particularly given the relatively short duration of patent rights and their high degree of vulnerability.  Anyway, as Joff predicted, the IPO was extremely successful.  In his blog today he writes:

"Defensive patent aggregator RPX Corp has stated that its IPO, which took place today, raised approximately $159.6 million, with shares trading at $19 a pop. This is higher than the original $16 to $18 forecast, and must mean the firm is valued close to, or even over, $1 billion. That is an extraordinary valuation for a company that has yet to have its third birthday and which has generated "just" $100 million since its inception. How much leverage does this give the firm's subscribers I wonder? Could RPX afford to allow any of them to walk away by refusing a request for a discount on subscription fees? 
You can follow RPX share price performance here. As of 5.45 pm UK time (12.45 EST), shares were trading at $23.65, up over 20% on the day. As I say, extraordinary. I cannot do the maths, but I wonder whether RPX is now notionally more valuable than Acacia, the NASDAQ-quoted NPE. Its market cap is currently $1.45 billion. That's up from $90 million two and a half years ago. Is it just me, or is anyone else seeing bubbles when they close their eyes?"

I agree wholeheartedly with Joff's comment and wonder what other readers feel. Do let us know.

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