Easy come — Easy go… Easy come?

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MER Telemanagement -- October 15, 2013As I sauntered into my office this morning, the unrealized gain on my investment in MER Telemanagement Solutions leaped in excess of $100 thousand on the news that the company had signed another MVNE deal with SBC Communications, a North American based communications provider (read about this in the company’s press release here.)

Over the next hours, the per share price of MTSL, the company’s equity, worked its way toward $3.25, adding a nice additional 25% to the day’s unrealized gain.

And then, around noon, the rally collapsed, dropping the per share price to $2.75, or so, bringing the day’s unrealized gain down to $75 thousand.

Where the rally goes from here, I don’t know, and, in a very real sense, it is not important, since I think that both the intrinsic and the potential value of MTSL is far more than $3.25 per share, and my investment paradigm calls for infinite time-horizon in the capture of the the intrinsic and the potential values in equities.

However, I can still allow myself to be stunned. Think about it. $125 thousand growth in a blink of an eye, and $50 thousand erasure in a couple of hours.

The explosive growth is not a surprise, I think. As I have written about in the past, the unique combination of a superior balance sheet, assured high-margin revenues in 2013, and extremely limited low float means that MTSL has the potential for doubling, tripling, and even quadrupling in a heartbeat.

In fact, as I have pointed out ad nauseam in prior postings (see here, for instance,) the only real problem with MER Telemanagement Solutions at this stage is the company’s apparent inability or unwillingness to communicate in a straightforward manner with its stakeholders, which I believe have the potential for getting the company in a great amount of trouble if the tendency is not arrested.

Today, for instance, the press release refers to the solution underlying the contract as a “… cloud and managed services MVNE solution” and also referred to the “… MTS MVNE managed services and cloud solution.” Although I have seen this phrasing in an earlier press-release related to the deal with DataXoom, this is somewhat different than the earlier communications stream by the company, which, in my view, has emphasized managed services, and, if based in a real switch of delivery mode from managed service to cloud/SaaS, has profound impact on margins, market perception, and the company’s operation. To simply, out of the blue (pun intended!,) throwing cloud into the communications mix, is a remarkably dangerous thing to do with securities litigators aggressively trawling for misrepresentation by micro cap companies.

From both an operational and accounting standpoint, cloud is not managed services and managed services are not cloud. More importantly, from a market perception standpoint these two delivery models are not identical and the one, cloud, has far higher cachet than the other.

Ok… to be fair, I have seen the phrase “MTS Subscription Cloud Billing Platform” since perhaps October of 2012. However, as far as I know, this did not really translate into an actionable cloud based billing platform, but rather was more or less promotional filler materials.

Likewise, referring to the new customer, SBC Communications, LLC out of South Carolina, as a “… large U. S. based service provider of internet, cable TV, home phone and wireless services” may stretch the definition of large quite a bit. In my book, Verizon is large, but SBC Communications, LLC is not (for a quite similar issue with DataXoom, another MER Telemanagement Solutions’ customer, read my earlier posting here.)

As I wrote about in a recent posting, besides the investor and market communications issues, the company, which is facing the loss of its largest and most profitable contract in 2014, is faced with the relatively straightforward operational challenge of reducing costs while it runs up its sales to offset the expected loss of high margin revenues in 2014.

If this challenge can be met over the next two quarters, today’s upswing in the per share price, will not be viewed in the same manner as the previous upswings, as an speculative run-up, but rather, as an early indicator of what is to come.

I, for one, can’t wait to see what they are going to do next.

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