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Last night SupportSoft (NASDAQ:SPRT) released Q3 2006 results which were basically in line with expectations. The company reported a cash-flow positive quarter on nearly $12 million in revenue, with license fees growing from the second quarter of 2006, maintenance revenue remaining stable, and the cash pile growing slightly to $122.5 million. Overall, it definately appears that SupportSoft's enterprise software business has stabilized and that new growth initiatives should start to generate additional top-line increases for the enteprise business in 2007.

However, if it was just for their enterprise software business we wouldn't be that excited about SupportSoft. Our key thesis for SupportSoft, as outlined here, is that in addition to the enterprise software business, which has limited attractiveness, the company is in the midst of launching a new consumer support offering, via www.support.com and other channels, that has incredible potential and could yield extraordinary gains for SPRT shareholders over the next few years.

The consumer service, which is being launched with one of the largest PC manufacturers in the world (the specific name has still not been revealed), is basically an online/remote version of the incredibly successful Geek Squad, Best Buy's (NYSE:BBY) consumer service division. Our own research and personal experience definitely supports the notion, advanced by SPRT and many other corporations, that paid support for consumers will become a huge market over the coming years. SupportSoft management, as well as other sources, estimate the total market size at $10 billion. Interestingly, aside from the Geek Squad, there is as of yet no real brand in this industry, opening up the opportunity for SupportSoft to quickly position itself as a leading player in the growing consumer support industry. SupportSoft plans to launch its consumer service in early 2007, but trials will begin in the fourth quarter of 2006.

Most importantly, SupportSoft's (SPRT) stock price does not yet reflect any of the potential that could be generated by this new consumer business. By our own estimates the enterprise software business alone is worth about $2.75 per share. Adding in the cash on the balance sheet of about $2.70 per share, yields a fair value for the company, ex any consumer business, of about $5.50 per share.

So in essence, at current prices, an investor in SPRT is getting a free "call option" on a potentially huge consumer support business, while the downside is protected by a stable and growing enterprise software business. There are not many other opportunities that we are aware of in the software and consumer (B2C) Internet space that have this favorable of a risk/reward ratio. As such, we still recommend aggressive purchase of SPRT's shares at current prices or lower ahead of the company's launch of www.support.com, and other aspects of the consumer support offering in 2007.

Disclosure: We hold a position in SupportSoft and first recommended the stock at $3.95 in May 2006.

SPRT 1-yr chart:

Source: SupportSoft's Promising Consumer Product Not Reflected In Stock Price