Xperi Holding Stock: Pros And Cons (NASDAQ:XPER)

Xperi Holding Corporation (NASDAQ:XPER) makes for a compelling stock in certain aspects. For instance, XPER possesses a great deal of intellectual property or IP, putting the company in a good position for a steady source of income, in theory at least. In addition, multiples for XPER are on the low side for the most part, making it an interesting option for those looking for potential bargains. However, XPER also comes with drawbacks, making the bull case for XPER a more iffy proposition than it otherwise would be. Why will be covered next.

Why some may be drawn to XPER

XPER has a number of attributes that may be appealing to some. For instance, XPER develops a fairly wide range of technologies that are incorporated into billions of consumer devices, semiconductors and media platforms. XPER licenses its IP to others and it’s actually one of the biggest companies in the world in that regard. XPER also controls a number of well-known brands like DTS and TiVo.

Some of its IP has great growth potential. For instance, XPER’s hybrid bonding has attracted great interest as the semiconductor industry moves towards greater use of advanced packaging, including the use of three-dimensional integrated circuit technologies. One of the latest companies to license hybrid bonding from XPER is Micron (MU). Others have done the same.

The licensing of IP is a relatively steady source of income that is less prone to the ups and downs associated with market cycles. Having a large portfolio of income-generating IP makes XPER potentially more resilient to economic downturns, which could come in handy if the U.S. economy enters a recession as some fear could happen due to Fed tightening.

XPER could have tremendous upside, depending on how many companies sign up for license agreements with XPER. In the best case, the long list of technologies in the pipeline are a big success, making XPER a growth story without the volatility associated with companies that are more reliant on market cycles. The stock could be a winner from that point of view.

XPER’s valuations are relatively low

XPER has another trump card. In addition to having huge upside, multiples are also relatively low, especially for a company that could see tremendous growth in the future. The table below shows the multiples XPER trades at. XPER is available at multiples that are significantly lower than the sector median or its 5-year average. For instance, the stock trades at 1.35 times book value, lower than the sector median of close to 4. The closer XPER gets to trading at or below book value, the more likely it is to attract buying interest from those who believe a stock trading below book value is undervalued.

	XPER
Market cap	$1.80B
Enterprise value	$2.37B
Revenue (“ttm”)	$877.7M
EBITDA	$259.1M
Trailing P/E	–
Forward P/E	70.56
PEG	–
P/S	2.10
P/B	1.35
EV/sales	2.70
Trailing EV/EBITDA	9.14
Forward EV/EBITDA	8.32

Source: SeekingAlpha

However, XPER is not without flaws. XPER does not have a trailing P/E because it is not profitable on a GAAP basis, but that’s due to elevated levels of amortization expense. Remember that XPER decided to merge with TiVo Corporation in late 2019, a transaction valued at $3B, which is still having a residual impact. In terms of EBITDA, which strips out amortization expense, XPER trades at 9.14 times EBITDA on a trailing basis and 8.32 times EBITDA on a forward basis with an enterprise value of $2.37B. XPER is valued at 2.1 times annual sales with a market cap of $1.8B, which is lower than its enterprise value due to net debt of around $575M.

Why some may be wary of long XPER

While XPER has its strengths, it also has its weaknesses. The latter may be enough to persuade potential longs to refrain from getting in on XPER, its strengths notwithstanding. There are a couple of reasons for this. For starters, the stock has struggled for quite some time. The stock lost 9.5% of its value in 2021 and it has lost another 8% YTD in 2022. The chart below shows how XPER has been on the decline for quite some time.

Note how the stock has gone down in what appears to be a descending channel, bounded by a series of lower highs and a series of lower lows that are parallel to each other. The stock has bounced around between the upper trend line and the lower trend line, the former being resistance and the latter being support. The stock has been kept contained within the channel, but since the direction of the channel is pointing down, the stock is heading down.

In addition, while the stock has bounced in recent weeks, the stock is having trouble moving through the area around $17.50. There have been multiple attempts, but the stock has been unable to break through and stay above this level. If the stock is unable to move higher, then the path of least resistance is to head lower, possibly for another retest of support at the lower trend line. The short-term outlook is bearish as far as the charts are concerned, which argues against going long XPER.

XPER seems to be in the slow lane when it comes to growth

XPER may have a lot of growth potential, but for now growth leaves something to be desired. For instance, Q4 FY2021 revenue declined sequentially and YoY to $214.4M. IP revenue was $89.7M and product revenue contributed the remaining $124.7M. Note that XPER entered into a long-term license agreement with Comcast (CMCSA), which boosted the top and the bottom line in Q4 FY2020, skewing the YoY comparisons.

In Q4 FY2021, XPER finished with a net loss of $14.6M or $0.14 per share in terms of GAAP. In term of non-GAAP, net income was $33.9M or $0.30, mostly because non-GAAP excludes $46.6M or $0.45 per share in amortization expense and GAAP does not. The table below shows the numbers for Q4 FY2021.

(GAAP)	Q4 FY2021	Q3 FY2021	Q4 FY2020	QoQ	YoY
Revenue	$214.449M	$214.558M	$433.927M	(0.06%)	(50.58%)
Operating margin	(6.42%)	1.83%	43.74%	–	–
Operating income	($13.767M)	$3.926M	$189.782M	–	–
Net income	($14.559M)	($45.067M)	$179.791M	–	–
EPS	($0.14)	($0.43)	$1.68	–	–
(Non-GAAP)
Net income	$33.880M
EPS	$0.30

Source: XPER Form 8-K

If the Q4 numbers are available, then so too are the numbers for the whole year. FY2021 revenue declined by 1.6% YoY to $877.7M. Net loss was $55.46M or $0.53 per share in terms of GAAP. In terms of non-GAAP, net income was $229.57M or $2.03 per share. Note that the non-GAAP number excludes amortization expense of $203.4M or $1.94 per share and stock-based compensation expense of $58.2M or $0.56 per share, but the GAAP number does not.

(GAAP)	FY2021	FY2020	YoY
Revenue	$877.696M	$892.020M	(1.61%)
Operating margin	1.6%	19.9%	(1830bps)
Operating income	$13.812M	$177.627M	(92.22%)
Net income	($55.457M)	$146.762M	–
EPS	($0.53)	$1.75	–
(Non-GAAP)
Net income	$229.571M
EPS	$2.03

Source: XPER Form 10-K

Guidance calls for FY2022 revenue of $910-950M, an increase of 5.96% YoY at the midpoint. The latest report did not come with an EPS number for FY2022, but management did suggest non-GAAP EPS of around $2.06 in the earnings call, or $0.03 more than in FY2021. From the Q4 earnings call:

“Using the midpoints of the guidance ranges, we would expect non-GAAP earnings per share for the full year to be approximately $2.06.”

A transcript of the Q4 FY2021 earnings call can be found here.

While growth in the single digits is by no means horrible, it’s also nothing to get excited about. In contrast, many other companies are doing a better job of growing the top and the bottom line. XPER has to stand out and rise above the competition if it is to gain enough buying interest. It’s not doing it right now.

Investor takeaways

XPER in active in many different fields. Whether it’s video-on-demand, voice interactivity, DVR, interactive programming, search and recommendations or high performance computing/storage, XPER has a finger in the pie. With billions of home and mobile devices utilizing at least some of XPER’s IP or technologies, there are lots of people out there who make use of XPER without even knowing it.

XPER has been fairly successful with the licensing of IP and various technologies, which are the source of most of its revenue. For instance, XPER has generated more than $9B in revenue in the last two decades from the licensing of IP, more than $1B coming in the last two years. That looks set to continue with more licensing agreements likely in the pipeline.

For instance, the Connected Car solutions like AutoSense and AutoStage are in their early stages and they have lots of growth potential. XPER could be a company that is set for a major acceleration in growth in the coming years. In addition, getting in on XPER does not have to come at too great a cost since multiples are low for the most part, especially once they are adjusted for the impact of past acquisitions on the quarterly numbers.

However, while XPER may be an affordable company with great potential, I remain neutral on XPER. The potential is there, but it has yet to be realized for the most part. At least, in a way that moves the quarterly numbers in a big way. The current forecast is that of a company stuck in the slow lane when it comes to growth. That could change down the road, but that’s how it is for now.

It’s not without reason that the stock has struggled for a long time. While the stock has managed to rally from time to time, the general direction of the stock has been down for over a year. The stock is stuck in a downtrend with lower lows and lower highs. In addition, the chart patterns suggest the stock is very likely going down in the immediate future with the stock up against resistance.

While the stock can always break out of a descending channel in the future, the fact remains that it has yet to do so. The stock may be more suitable for those looking for a short-term trade. In that case, the stock can be bought when it is at or near the lower trend line and sold when the stock is at or near the upper trend line. This can be done as long as the descending channel remains intact. As they say, the trend is your friend and the trend is very much down right now.

Bottom line, long XPER is not warranted as things stand right now. The stock is very likely heading lower. XPER also has some work to do when it comes to growing the top and the bottom line. XPER does have its qualities, which is why it is worth keeping an eye on the stock as the time may come when the bull case is on a stronger footing. Just not right now.