Support.com

Ticker
$SPRT
Buy Price
$0.74
Holding Type
Option
Investment Theme
Net Net
Open/Closed
Closed
Trade Date
November 17, 2016

I am buying this stock at $0.74 per share. The company provides software and services for customer tech support (think of a tech help desk).

With 55.6m shares out, market cap is $41.1m. SPRT expects to have $52m in net cash at yearend ($0.935 per share) with cash burn at around $2.5m per quarter. Accounts receivable and some other assets offset total liabilities so net cash is a good way to look at it. Revenue is coming down as Comcast and Office Depot make up 60% and 15% of total sales, respectively. The small software division (~9% of sales) is flat to growing modestly.

This is a classic negative enterprise value stock with 26% upside to yearend net cash levels. The company has some activists involved that have gotten elected to the board. It remains to be seen whether they intend to sell the whole company. If the software division is worth 1x sales (~$7-8m) and the rest of the business is worthless then the whole company should be worth at least $1 per share in a sale.

This seems like an easy trade as long as they are not wasting too much time in getting a sale done. The discount to net cash is 20% today, if I assume they burn another $7m over 3 quarters then I’d be staring at a $0.65 per share stock (12% downside). This is plain vanilla 3:1 risk/reward scenario. Monitor cash burn closely.

UPDATE: I finally sold this at $2.10 per share ($0.70/share after adjusting for reverse split). This amounts to a 5.5% loss. The company continued to burn cash and was not making any progress on a sales process. Better opportunities and a small position size led me to move on from this one.