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Mattersight: (NASDAQ:MATR) $5.80, market cap $100mln

Mattersight is at an inflection point. The Company has a Total Addressable Market (TAM) of $3.4bln (company data). The catalyst is a new product cycle that will accelerate revenue growth rates that could potentially double the size of the company's business.

Mattersight provides enterprise analytic software focused on customer and employee interactions and behavior.

Mattersight's last twelve months revenue is $36mln, with a $1mln average selling price for the flagship behavior analytics product. The customer is contracted for 2-3 years and revenue is recognized ratably in a subscription model. The sales cycle is approximately 1 year on the existing product portfolio.

With the introduction of a "lite" version, Mattersight is able to sell into the customer at the IT department level rather than selling into the C-suite. This enables a significantly shorter sales cycle and quicker penetration that enables broader reach amongst new and existing clients. The opportunity to upsell and cross sell the client enables the business to scale creating operating leverage.

The company is currently in trial with 54 pilots of the new PBR (performance based router) products.

This new product portfolio has higher margins than the existing business. Current Company gross margins are in the 68% range. New product gross margins are in the mid 80% range. This is a mid teens operating margin model over time.

We expect meaningful traction in converting pilots to revenue as we enter Q3'14. Conversion rates will be an important matrix as to how the company is performing.

The risk is in the execution as the company converts pilots to licenses.

In summary, we believe the Company has the opportunity to accelerate revenues with a new product cycle that could potentially double the revenue run rate while simultaneously expanding margins.

Price target $9.

Source: Mattersight Is At An Inflection Point