Shares in ‘mobile money’ play Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) have enjoyed a solid bump in recent days, and has leaped more than 57% so far this week.
The company has seen its stock plummet almost 80% from a record top of 79.75p per share hit just under a year ago, prompting many to speculate that the share price could be taking the first tentative steps on the road to a spectacular turnaround.
Revenues continue to disappoint
Still, the share price collapse of the past 12 months has been caused by worries over slowing revenues growth and consequent profit warnings, and January’s update revealed that the sales outlook remains dire. Monitise now expects turnover for the year ending June 2015 to clock in at between £90m and £100m this year, bucking previous projections that the top line would grow by around a quarter.
As a result Monitise has been forced to swallow yet another profit warning, and the business now expects to record a full-year earnings loss of between £40m and £50m, rising from the £31.4m loss punched in fiscal 2014.
And while Monitise says it expects to become profitable in 2016, I am not one to share the company’s optimism of a sudden bounceback at this stage.
The firm reiterated its belief that it will attract 200 million users with average revenues per user (ARPU) of £2.50 by 2018 but, as Goldman Sachs points out, this would imply a compound annual growth rate of 150% during the next few years.
And there a number of obstacles Monitise may have to tackle in order to get anywhere near these projections, from dealing with new entrants muscling in on the mobile payments arena through to having to consistently deliver market-leading innovation in line with technological evolution.
So just how much is Monitise worth?
Investor appetite has received a shot in the arm more recently as investors speculate over what Monitise could be worth to potential suitors. The firm put itself on the market last month after commenting that that a combination of “recent share-price weakness, shareholder feedback and industry developments” have prompted it to review all strategic options for the business in a bid to maximise shareholder value.
But just how much the business is actually worth is anyone’s guess. Indeed, Barclays Capital notes that “it is clearly hard to value the business externally, as this has always been a concept stock with the value predicated on the delivery of the 2018 plan,” adding that “it is difficult to assess the value of IP which will not be worth the same for every potential buyer.”
Given the number of uncertainties facing the firm, from its questionable revenues outlook, the possibilities that could be thrown up under its strategic review, and of course the price at which it could be sold for, I believe that Monitise remains a high-risk stock, not for the faint of heart.
