TIX Corp – Worth More Than a Second Look Here
A few weeks ago I dished on intellectual property (IP) and those respective rights in terms of what is going on in the mobile phone world. Pulling the lens back a bit, I noticed there are other battles being fought and some that are looming. These battles can be tricky, which it helps to have a solid or preferably growing business underneath. That is one of the reasons why I continue to like InterDigital (Nasdaq: IDCC) shares here.
Another company that I am rolling my sleeves up on and doing some homework is outside of the mobile space but is one that appears to have a potentially significant piece of IP in its coffers. That company is Tix Corp. (Nasdaq: TIXC) and the IP I am referring to comes in the form of a United States patent on a “Ticket Distribution System” awarded in early January. This patent covers a number of the key aspects of discount ticketing brokerage operations and technological systems related to the sale and distribution of unused tickets.
Pretty interesting not only for a relatively small sized company but even more so against the backdrop that is TicketMaster and Live Nation (Nasdaq: LYV). Per the February 25th earnings release, it appears that Ticketmaster generated $1.3 billion in ticketing revenue in 2009 while Live Nation garnered $73.6 million for its ticketing efforts. Remember that one of the synergies of the merger is to bring together the strength of Live Nation’s music and promotion business with TicketMaster’s ticketing processes
Impressive for sure but in terms of Tix Corp., the question to ask is what is the potential revenue stream from its Ticket Distribution Patent? In 2009, TicketMaster sold 130 million tickets with 34 million sold in 4Q09. Assuming Tix and Live Nation were to come to an agreement, it would not take much for such an agreement to radically move the needle in terms of Tix’s revenue stream, which totaled $81.8 million in 2009. To see the potential impact, consider a licensing fee of $0.25 per ticket and some quick sandbox math – taken together suggests revenue of $32.5 million for Tix. Is $0.25 per ticket the right number? Who knows and while many can perform a sensitivity analysis, the bottom line is the successful enforcement of its patent could result in meaningful boost to Tix’s revenue with arguably favorable margins to the existing corporate average.
While such licensing agreements can take more than a few quarters to hammer out, Tix has a solid business underneath driven its Tix4Tonight discount ticket business and its Exhibit Merchandising business is poised to benefit from ‘Cleopatra: The Search for the Last Queen of Egypt’ in the second half of 2010.
With little to no research coverage, its easy to see how Tix and other companies like it can fall through the cracks especially when its been beaten much the way Tix has since November of last year. Per some filings and chatter it appears a key holder of Tix shares imploded last fall and had to liquidate its fund. If that is true, once that overhang has been cleared up, the current share price could offer a favorable entry point at current levels compared to the $4 level Tix shares were trading at last October.
With no debt, positive cash flow, a share buy back plan in place and a business poised to benefit as the domestic economy rebounds, Tix shares are worth a second look given the current valuation (0.3x enterprise value to trailing 12-month). Any IP licensing wins for Tix could not only generate upside but also could put the company in play in my view. I would be surprised if Live Nation (and others) does not examine the long-term revenue stream it may have to pay to Tix compared to Tix’s current market capitalization and the amount of cash Live Nation had on hand at the time. At the end of 2009, Live Nation had $237 million in cash and equivalents.
The Thematic Investor
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