2014 has been very tough for investors in Barclays (LSE: BARC) (NYSE: BCS.US) and Monitise (LSE: MONI) (NASDAQOTH: MONIF.US). That’s because shares in the two companies have fallen by 18% and 57% respectively since the start of the year and, perhaps more importantly, have shown little sign of turning things around in recent weeks.
Clearly, value investors will be more interested now that the two companies’ share prices are much lower. However, could a combination of the two stocks also hold wider appeal to growth investors, too? In other words, could a mix of ‘little and large’, or ‘old and new’ be the perfect way to future-proof your banking investments?
Payment Systems
As the world becomes more digital, the banking sector must adapt to changes in consumer tastes and offer convenient ways for customers to use their accounts. A key breakthrough on this front has occurred in recent years with the advent of mobile banking, an area in which Monitise specialises.
Indeed, it provides mobile and computer-based payment solutions that are used by a wide variety of banks, including RBS and HSBC. Such applications are relatively simple for banking customers to use and, as a result, are becoming increasingly popular. This means that companies such as Monitise have a product with considerable future potential.
Profitability
The problem is that Monitise has not yet been able to turn future potential into present day profit. Indeed, its bottom line remains firmly in the red and is set to remain so in the current year.
This is in stark contrast to Barclays, which has remained profitable throughout the credit crunch and is forecast to increase its bottom line by 24% in the current year and by a further 30% next year. This shows that, despite having a large branch network that is costly to run, Barclays is still able to deliver stunning growth numbers.
Looking Ahead
Clearly, the days of going into a bank branch on a regular basis are becoming numbered. As the use of mobile payments becomes more prevalent, this transition should speed up. As a result, it could be argued that buying shares in Monitise and Barclays is a means of gaining exposure to the ‘old, transitioning’ world of banking (via Barclays), as well as the ‘future’ (through Monitise).
While this argument seems to stack up at face value, the current opportunity available to Monitise seems more than adequate for it to deliver a black bottom line. In other words, consumer take-up of mobile banking is very high at present and, while there is more potential to come, a company that is involved in that niche, it could be argued, should already be hugely profitable. If Monitise cannot make a profit at the moment, will it ever be able to deliver strong returns to shareholders?
In addition, while Barclays may be rather ‘old school’ when it comes to still having a branch network, it has the resources to keep up with changes in consumer tastes and technology so as to ensure it is never left behind by the wider industry. So, while an investment in Barclays looks like a sound move, Monitise could come under more pressure until it is able to turn potential into profit, which is unlikely to happen over the short run.