Rogue Funds' Big Bet Pays Off: Rimini Street's 50% Surge After a Courtroom Blitz
For the initial thesis on Rogue Funds view this link: Rimini Original Thesis
Rimini Street is now the fund's biggest holding, and for a good reason. In July 2023, the stock nosedived over 60% after a court update in its 13-year litigation battle with Oracle. But instead of panicking, we saw an opportunity. Let's dissect this situation, starting with the July decision and how Rogue Funds reacted.
Rimini Street Stock via TradingView
What Happened?
On July 25th, the court released an update on the Rimini II case, making an unprecedented move. They redefined parts of Oracle's code as intellectual property, hindering Rimini Street's ability to service PeopleSoft clients. The court ruled that Rimini Street couldn't use the same code base across different clients, even if they faced similar issues. This significantly reduces automation and forces Rimini to start from scratch for each client. Worse, the judge ordered Rimini Street to issue a scathing public apology for alleged lying and defamation. I wrote live updated on twitter/X back in july (@jaro_rogue) as I tend to post positional updates and other opinions.
The Business Impact:
PeopleSoft services only represent 8% of Rimini Street's revenue (and declining). This could mean Rimini either maintains the service with lower margins or axes it altogether (though I believe the latter is unlikely). Thankfully, all other Oracle third-party services and non-Oracle businesses remain unaffected. Additionally, Rimini Street was recently burdened with a $15 million attorney fee payment to Oracle.
How Did We React?
Witnessing the 60% stock plummet in July, analyzing the court decision, and discussing the ramifications with Rimini Street's investor relations team, Rogue Funds took a bold step. We aggressively bought Rimini Street stock until it reached nearly 30% of our portfolio. Since the decision lows, Rimini Street has surged nearly 50%, transforming a major portfolio loss into a significant gain. This rise led us to reduce our position with healthy profits.
Rogue Funds' Opinion and Long-Term Outlook
Frankly, I find the court's decision embarrassingly wrong. It seems like a complete reversal of their 2018 ruling, and I believe the appeal process holds significant promise. The decision's ripple effect has even impacted Oracle's sales this quarter, likely due to the court's lack of clarity and companies' fear of losing future Rimini Street services. However, I believe these concerns will fade with time, and Oracle's sales will rebound.
The good news? Rimini Street is firing on all cylinders. Their US growth is back on track, and I expect global expansion to follow soon. Their SaaS sales are thriving, indicating a strong marketing strategy and a growing, well-trained sales force. The $1 billion sales goal remains firmly in sight, and eventually, Rimini's underlying business will likely outpace the lawsuits, minimizing their impact on the bottom line. This could even lead to the lawsuits drying up altogether, as Oracle's litigation tactics become less effective against a thriving Rimini Street.
The best outcome of this situation? A reinvigorated Seth Ravin (CEO). One of my biggest concerns about the company was Ravin's salesman persona and lack of transparency. This is no longer an issue. Ravin's recent conference call showcased a motivated, candid, and passionate leader. His passion is infectious, and seeing his net worth plummet during the crash has demonstrably fueled his drive to push the company forward. This is why I love companies with CEOs as invested as Ravin (he owns roughly 10% of the company).
We remain long-term holders of Rimini Street. We anticipate minor short-term turbulence as litigation costs hit this quarter and the full impact of the Rimini II decision unfolds. However, the long-term story remains compelling, and if anything, this could even accelerate future goals as the company's motivation intensifies.
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Disclaimer: The author of this idea has a position in securities discussed at the time of posting and may trade in and out of this position without informing the reader.
Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC and CSA filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice. The author and funds the author advises may buy or sell shares without any further notice.
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