Sometimes investing in a neighbor doesn’t work out as planned.
Patent licenser Acacia Research Corp. (Nasdaq: ACTG) in Newport Beach took a big loss related to its investment in Veritone Inc. (Nasdaq: VERI), which is headquartered in nearby Costa Mesa.
Acacia sold nearly a quarter of its stake in the volatilely traded company trying to crack into the artificial intelligence segment, its new management team said in a third-quarter earnings report on Oct. 25.
The company sold 1 million shares of Veritone stock in the last quarter for $10.4 million, taking a loss of $5.5 million. It still owns 3.1 million Veritone shares and said its investment is a currently unrealized loss of $22.4 million. A year ago, Acacia reported an unrealized gain of $159 million on Veritone stock.
Acacia first invested in Veritone in 2016, when it invested $20 million in return for an equity stake in the upstart tech firm.
Veritone shares have roller coastered for more than a year, trading at $7.23 as of press time with a shriveled market cap of $139 million—light years from its intraday high of $74.92 and a $1.1 billion market value in late September 2017.
Acacia reported third-quarter revenue fell 63% to $13.7 million. It posted a loss of $33.2 million, or 67 cents per share, compared to net income of $158.3 million a year earlier driven by its unrealized gain in Veritone investments at the time.
“During the third quarter, we also focused on continuing our expense reduction efforts, assessing known and potential risks and liabilities and carefully examining the opportunities in Acacia’s core IP and licensing business,” board director Al Tobia said in a conference call after earnings. “Since July, we have cut overhead by more than 50% and are finalizing an operating expense budget for 2019 that is in the range of about $6 million.”
Its 17,800-square-foot corporate headquarters at 520 Newport Center Drive, among the most expensive office towers in Orange County, will be subleased, and the company’s 11 employees will move “to more appropriate offices,” said Tobia, who along with Clifford Press replaced then Acacia Chairman G. Louis Graziadio and Director Frank Walsh in June.
“Acacia is now a much more stable business with an appropriate cost structure,” Tobia said.
Investors shrugged off the results, as shares hovered around $3 at press time. In a signal that the company isn’t highly valued by investors, Acacia reported $143 million in cash and short-term investments, which was near its $148 million market cap at press time.
Acacia’s ties to Veritone and a newer investment strategy targeting potentially high-growth companies in AI, machine learning, robotics and blockchain applications drew the ire of activist investors. New York-based hedge fund manager Sidus Investment Management LLC and BLR Partners LP in Houston, waged a successful proxy battle that started with Graziadio and Walsh’s ousters.
The Business Journal reported in August that senior Acacia management was ousted and that all board members in place before the proxy fight resigned.
Iribe’s Next Chapter
Keep an eye on Brendan Iribe, the Oculus Rift co-founder who recently announced his departure from social network giant Facebook Inc.
“We assembled one of the greatest research and engineering teams in history, delivered the first step of true virtual presence with Oculus Rift and Touch, and inspired an entirely new industry,” he said in an Oct. 22 Facebook post. “Although we’re still far from delivering the magical smart glasses we all dream about, now they are nearly within our reach.”
It was that promise that attracted Facebook and Mark Zuckerberg to Oculus, which got its start in Irvine in 2012. Less than two years later, it was acquired for $2 billion, cementing one of the most meteoric rises in OC tech history.
Iribe, like fellow Oculus co-founder Palmer Luckey, has a palatial property in Newport Beach, so returning to OC, which he often talks of fondly, wouldn’t be a surprise. Luckey returned last year, after he was pushed out of Facebook, to launch Irvine-based defense startup Anduril Inc.
“This will be the first real break I’ve taken in over 20 years,” Iribe said in the post. “It’s time to recharge, reflect and be creative. I’m excited for the next chapter.”
