Since the turn of the year, shares in Monitise (LSE: MONI) have been a major disappointment for their investors. In fact, they have now fallen by 45% year-to-date and have shown little sign of life, with there being no satisfactory bids following the company’s decision to review its strategic options. And, looking ahead, things could get worse before they get better. Here’s why.
Management Changes
On the plus side, Monitise has a new CEO and fresh blood on its board. Former Visa executive Elizabeth Buse now heads up the company and, encouragingly for the company’s investors, she appears to have more experience in payment solutions than Monitise’s previous CEO, Alastair Lukies. This, then, appears to be good news for the company, since it could mean that Ms Buse optimises Monitise’s business model and allows it to become much more than just a great service for its customers.
Loss-Making
However, Ms Buse is joining a company that is a long way off profitability. Certainly, it is expected to improve over the medium term and is still forecast to make a profit in 2016, but there are still question marks surrounding whether Monitise can ever deliver the profitability that many of its investors are hoping for. Certainly, it has a great product and a number of blue-chip clients, but if it had such vast potential then it is rather strange that there were no serious bidders for it just a few months ago (when it conducted its strategic review) and also that Visa decided to pull out as an investor.
Furthermore, Monitise’s financial standing remains somewhat concerning. Sure, it has around £130m in cash sitting on its balance sheet, but this may only be enough to last for less than two years if it continues to spend as it did in 2014. As such, a rights issue or other financing may be needed so as to put the new CEO’s plans into action. This could increase the risk of investing in Monitise and lead to a decline in investor sentiment in the short to medium term.
Looking Ahead
Clearly, mobile payments solutions are a key part of the offering of major financial institutions. And, looking ahead, the sector is set to grow significantly in the long run. However, there is a big difference between a great product and a highly profitable product. So, while Monitise does have long-term potential, major changes seem to be needed in order to make it a viable business which, in the meantime, could seriously damage investor sentiment in the company. As such, now does not appear to be a great time to buy a slice of it.