These points have been interesting. Obviously, we don't know exactly what will happen. The question for the potential investor is the risk profile of events going forward. The problem is, whichever way you look at it, there remains a significant chance that damages will prove substantial.
In fact, they could amount to around 10 times the current market cap. This ratio makes the typical valuation ratios like price to sales (forget about price to earnings) dwindle into triviality.
POTENTIAL DAMAGES/MARKET CAP ~ 10
POTENTIAL DAMAGES/REVENUES ~ you don't want to know
This is not exactly the type of situation where you shout with glee and buy the dip.
Part of it will depend on the particulars of the appeal process. It is probably true that it will take quite a while, and during that time, the stock may gyrate a bit depending on how each side appears to be doing.
The trading dynamics will be interesting too as a lot of players will ride the short side, and some surprises are likely in short-run movements. I would not, however, buy solely based on this consideration. The other pieces need to fit together, and they remain as yet unclear.
I also believe it wise to look beyond the summary to the full details over the next few weeks.
If one decides to take a risk in this stock, he or she should be prepared to lose all of it with a reasonable probability. I am not a legal expert. But I agree that copyright infringement is typically associated with massive damages. Whatever is deemed right or wrong by any particular individual, what will matter for the stock is what happens in the court.
We need to see the particulars to know better the probabilities. Right now, I would say, very roughly, there is a 25-75% chance of devastation.
On the other hand, it is by no means certain. The counter-arguments raised by MP3.com supporters are not invalid. It could be worth the risk to take a small position. The company has a massive audience, is a pioneer of sorts, and yes, revenues are growing considerably. Survival remains a possibility; in this case, developments on a 5 year horizon could prove promising.
There could be a little concern over the skills of the management squad in handling this matter. Then again, they have built up an interesting corporate entity in a fairly short period of time.
In a way, I am a bit surprised that it did not slip even further after the news on Friday. And the way it fell appeared somewhat strange.
Basically, we need more information.
JM
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