Investors in Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) have endured a supremely challenging period in recent months, with the mobile payment solutions provider seeing its share price slump by 48% in the last six months. And, with it now being put up for sale, its future seems to be highly uncertain and difficult to accurately forecast.
Therefore, is Monitise now just a short-term trade that offers little more than high volatility, or is it still a company that has long-term investment appeal?
For: Short-Term Trade
Although owning shares in a company that could be a potential bid target is rarely a bad thing, buying shares in a company only for that reason is unlikely to be considered ‘investing’. In other words, if there is unlikely to be any share price gain over the medium to long term unless a bid approach comes in then it is more akin to a ‘punt’ than an investment.
This, it could be argued, is the opportunity currently presented by Monitise. It has lost the support of a key shareholder, Visa, and is likely to lose the same company as a key customer within the next two years. This, as well as its challenging transition to a subscription model, means that its hopes of becoming profitable in 2016 seem to be far less likely than they were just a handful of months ago.
With such a lack of future plans and a high degree of uncertainty regarding its future operations, Monitise is almost impossible to accurately forecast. As such, it could be argued that only its high degree of volatility is of real interest to investors at the present time, thereby making it a short term trade as opposed to a long term investment.
For: Long-Term Investment
While Monitise is highly volatile, it could also be argued that it has long term potential. For example, its product remains highly appealing and has a long list of blue-chip customers such as RBS and HSBC, which shows that it does have the prospect of winning new business over the medium to long term, since the mobile payments space is a fast-growing area where Monitise could have a degree of first-mover advantage.
Furthermore, Monitise has a clear strategy of transitioning to a subscription-based model. This should help it to deliver more consistency in its top-line growth numbers in future and could help it to reach its goal of profitability by 2016.
In addition, Monitise has attracted investment from the likes of MasterCard, Telefonica and Santander in recent months, which could go some way to replacing the loss of Visa as a shareholder. And, while its near-term future is very uncertain, the fact that it is a realistic bid target could be a major plus for investors and may cause its share price to rise over the medium to long term.
Looking Ahead
Clearly, Monitise remains highly volatile and, as such, will inevitably attract short term traders. However, it also has long term appeal and is focused on a fast-growing niche that seems to be the future of banking across the globe. As such, it is more than just a ‘punt’ but, with investor sentiment being so weak, it could be worth waiting for a more appealing share price before adding it to a long term portfolio.
