Xperi (NYSE:XPER – Get Free Report) and Mega Fortune (NASDAQ:MGRT – Get Free Report) are both small-cap services companies, but which is the better stock? We will contrast the two businesses based on the strength of their risk, dividends, earnings, profitability, analyst recommendations, institutional ownership and valuation. Get Xperi alerts: Earnings and ValuationThis table compares Xperi and Mega Fortune”s top-line revenue, earnings per share and valuation.Gross RevenuePrice/Sales RatioNet IncomeEarning ...

Core Insights - InterDigital has experienced a 16% increase in stock price, reaching record highs near $258 per share, driven by a $1.05 billion arbitration victory against Samsung [2] - The sustainability of this stock surge is questioned, given its high valuation metrics compared to the S&P 500 averages [3] Financial Performance - InterDigital's Q2 2025 revenue rose 34% year-over-year to $300.6 million, with non-GAAP EPS at $6.52, nearly double estimates, and GAAP net income increasing by 65% to $180.6 million [5] - The company upgraded its full-year revenue forecast to $790–850 million and returned $41.7 million to shareholders in Q2 [6] Licensing Model and Growth - The arbitration ruling added $131 million in annual recurring revenue, a 67% increase over the previous agreement, and a $119 million catch-up payment for Q2 [4] - InterDigital's smartphone licensing revenue grew 18% to $235 million, while licensing from Consumer Electronics/IoT/Automotive surged 175% to $65 million [6] - The company has shown remarkable growth, with a 22.9% average revenue increase over the past three years, significantly outpacing the S&P 500's 5.3% [7] Profitability and Financial Health - InterDigital boasts a net margin of 48.1% and an operating cash flow margin of 24.6%, indicating strong profitability [3][7] - The company maintains a 7.7% debt-to-equity ratio and 47.4% cash-to-assets, both better than S&P 500 averages, with $948 million in cash and $472 million in debt [7] Market Resilience - Historically, InterDigital has shown faster recovery from market downturns, recovering fully from significant declines during the 2022 inflation crisis and the 2020 COVID market crash [8] Strategic Positioning - InterDigital's asset-light, high-margin licensing model is supported by strong R&D in 4G/5G/6G, video compression, and AI, with a robust patent portfolio licensed to major companies [3][4]

Financial Data and Key Metrics Changes - The company reported a positive adjusted EBITDA of $2.4 million for Q1 2025, marking its first positive EBITDA quarter since 2023 [21] - There were $1 million in personnel-related costs in Q1 that have been eliminated, which would have resulted in a positive adjusted EBITDA of $3.4 million [22] Business Line Data and Key Metrics Changes - Licensing revenue increased significantly by 175% year-over-year, and even without the ByBorg deal, it was still up over 50% [33] - The ByBorg deal, effective January 1, contributes $5 million per quarter, with the first two payments already made [33] Market Data and Key Metrics Changes - The U.S. market represents approximately $35 million of the business, with a 10% price increase implemented to mitigate tariff impacts [12][22] - The company is seeing improvements in its China licensing business despite challenges from the tariff environment [34] Company Strategy and Development Direction - The company is focusing on an asset-light model and aims to reduce overhead while increasing EBITDA [22][28] - There are plans to explore growth opportunities in gaming and hospitality, including potential development of a Playboy Club [23][28] - The company is also looking to expand its content licensing and media strategy, including paid voting campaigns and magazine sales [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth opportunities in the next few years, particularly in licensing and content [28] - The company is preparing for potential revenue recognition from multi-year deals in the gaming sector [24][35] Other Important Information - The annual meeting for shareholder voting on the second equity investment is scheduled for June 16 [17] - The company plans to release additional magazine issues and capitalize on ancillary revenue streams from its content [25][28] Q&A Session Summary Question: Expectations for Honeybird debt and gross margin changes - Management indicated that they are ahead of plan for the second quarter and expect an easy comparable from last year [9][10] Question: Impact of Chinese tariffs on gross margin - The near-term impact of tariffs is estimated at about $1 million, but price increases and changes in shipping thresholds are expected to mitigate this [10][12] Question: Plans for new product development with ByBorg - Management is excited about new designs and has a minimum guarantee of $20 million per year from ByBorg [14][15] Question: Potential around other licensing categories - Management highlighted ongoing efforts in gaming and hospitality, with potential revenue recognition expected in the second half of the year [20][24] Question: Drivers of the licensing business in the quarter - Licensing was significantly up due to the ByBorg deal and improvements in the China licensing business [33][34]