As shares in Monitise (LSE: MONI) crash to new lows, I’ll be taking a look at the company and its prospects going forward. I’ll be asking whether it is yet another over-hyped story stock nearing the end of the road, or an outstanding buying opportunity for those prepared to look past the short term, as the company transitions its business model towards a subscription-based model.
Anyone buying the shares at the peak of just shy of 80 pence will be nursing a heavy loss, with the share price hitting 13 pence recently — the chart below illustrates the fall from grace as the market worried about the planned change of business model, the planned exit by Visa and the subsequent strategic review, which resulted in the departure of co-CEO and founder Alistair Lukies.
Let’s have a look at the bull and the bear case, currently being considered by investors…
The Bull Case
With the shares hovering around lows not seen since 2009, this could be a fantastic buying opportunity. Currently, the share price is reacting to several factors, including changes at the top following the strategic review. The fact that the company wasn’t sold could be making investors cautious that prospective buyers didn’t like what they saw and, as such, the shares have sold off.
I think that it is possible that investors could be missing a long-term opportunity here; let me explain why.
You sometimes hear people speak of bad companies. I find that it is usually bad management that give companies a bad name. Enter the now-sole CEO, Elizabeth Buse. Prior to Monitise, she spent 16 years at Visa, most recently as Global Executive, Solutions (responsible for the company’s merchant relationships, ecommerce, mobile and processing products). Before that, she spent three years in Singapore, running Visa’s business in Asia Pacific, Central Europe, Middle East and Africa.
She also held roles as Visa’s Global Head of Product, Executive Vice President of Product Development and Management, and Executive Vice President of Emerging Markets & Technologies, leading all aspects of product strategy, development and growth. That’s a pretty impressive CV.
In addition, the board has been bolstered with figures from strategic partners, such as Stephen Shurrock who represents Telefónica and Santander. Proponents of the company’s strategic decision to forgo licensing revenues and instead focus on monthly user fees and transaction fees may well take the view that is the right move in the long term, and savvy investors could be rewarded over the long term.
The Bear Case
It wouldn’t be difficult to argue that the bears currently have the upper hand, with the shares trading at around 14 pence. The bear argument, as I see it, can be summed up in these main points:
- The company was put up for sale and no buyer was prepared to pay the asking price;
- The strategic review resulted in the co-CEO and founder stepping down — this can often signal problems within a company and their business model;
- Visa, though still a partner, decided to exit its shareholding in the company;
- The company reports EBITDA earnings — Warren Buffett recently wrote: “People who use EBITDA are either trying to con you or they’re conning themselves”;
- The market is not sure whether the company will have the cash to see it through to profitability;
- It is not clear whether the company’s change of direction will work; as such, investors are staying away.
When you add all these factors together, it is easy to see why 2014 was a year to forget for shareholders and Monitise. 2015 hasn’t started too brightly, either. In my view, the market will need to see some positive signs that the new business model is gaining traction. If that doesn’t materialise, some investors will become bored and move on, possibly sending the shares lower — if the company’s market updates disappoint, however, then the shares could fall further still, even from these lows.
What’s My Take?
Personally, I would like to see some signs of positive traction from the new business model before making a purchase, but braver investors than me could achieve a multibagger from here on in if the company proves the doubters wrong.