InterDigital (NASDAQ:IDCC) has recently captivated the market’s attention with a remarkable 50% surge in its stock price over the past 12 months, a significant departure from its previous four-year period of trading sideways.
This uptick begs the question: Is this growth sustainable, marking a genuine inflection point for the company, or is InterDigital poised for another prolonged period of stagnation?
Unpacking the Recent Surge
The catalyst behind this resurgence can be traced back to a series of strategic successes and strong financial performances.
After a lull between 2016 and 2019, where revenue halved due to the conclusion of one-off ‘past royalties’ from giants like Apple and Huawei, InterDigital has demonstrated commendable revenue growth year-on-year since 2019.
This revival is largely attributed to the company’s increasing focus on generating recurring revenues, which have climbed steadily, reducing the firm’s reliance on the unpredictable one-off payments that previously characterized its revenue model.
The Role of Recurring and One-off Revenues
In 2020, InterDigital reported total recurring revenue of $336M against a relatively minor $22M in non-recurring revenue.
This trend of growing recurring revenue continued through 2021 to 2023, with 2022 alone seeing recurring revenue leap to $404M, a 20% increase from 2020.
However, 2023 brought a twist, echoing the patterns of 2016 and 2017, as InterDigital once again benefited from one-off catch-up payments, reminiscent of its past financial boosts.
A New Era with Samsung
Adding to the intrigue, InterDigital announced a groundbreaking deal with Samsung, enabling the Korean tech behemoth to utilize IDCC’s codec technology for video formatting in its television sets.
This agreement, which includes $160M in catch-up payments to be made in Q1 24, not only overshadows the total catch-up payments of 2023 but also heralds potential for record-breaking revenue and EPS figures for the fiscal year.
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Forward-Looking Revenue Projections
With an eye on the future, InterDigital has projected a total revenue for fiscal year 2024 ranging between $620M and $670M. Excluding Samsung’s substantial catch-up payment, the company anticipates $460M to $510M in revenue, suggesting an expected increase in recurring revenue to between $410M and $460M.
This forecast, which hints at a 1-10% growth, aligns with InterDigital’s historical tendency to meet or exceed its guidance targets.
Timing is Everything
The investment history of InterDigital reveals a clear pattern: purchasing stock following the company’s receipt of large one-off payments has historically yielded strong returns.
Conversely, investing in the fiscal year subsequent to these payments has often led to disappointing outcomes. With 2023 mirroring this trend and the company already announcing a significant catch-up payment from Samsung for Q1 24, investors are faced with a critical timing decision.
A Strategic Opportunity
Given InterDigital’s evolving revenue composition and the extraordinary one-off payment from Samsung, the company’s financial outlook for the coming year appears promising.
While the stock’s sudden rise warrants caution, the unique circumstances surrounding the Samsung deal suggest that the current momentum may have a more solid foundation than previous spikes.
Consequently, investors might still have an opportune window to capitalize on InterDigital’s upward trajectory, provided they navigate the investment landscape with informed precision and strategic timing.
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