Monitise’s (LSE: MONI) shares have slumped today following the news that Visa Europe, affiliated with Visa Inc, a key partner and shareholder is planning to sell-off its stake in the company.
Monitise’s shares have fallen by 18.4% at pixel time as investors weigh up the fact that Monitise is about to lose one of its most important partners.
Visa Europe owns 5.3% of Monitise’s issued share capital and is planning to reduce this shareholding over the few months while working out the remainder of its current commercial agreement with Monitise.
Monitise and Visa Europe will continue to work together on a number of projects under a three-year commercial agreement, which runs until the end of March 2016.
Time to panic?
Visa’s announcement that it is planning to sell off its Monitise stake shouldn’t come as a surprise to investors. This move has been in the works since September of last year.
However, what’s more concerning is the fact that Monitise now stands to lose a key partner. If Visa decides not to renew the commercial agreement with Monitise when it ends, Monitise’s long-term growth targets could be in jeopardy.
Of course, as of yet, it’s not possible to tell if the relationship between Monitise and Visa will last past 2016. Nevertheless, the one thing that the market dislikes more than anything else is uncertainty, and right now, Monitise’s future is extremely uncertain.
Missed targets
Unfortunately, Monitise has a history of missing targets and misleading shareholders. Since it came to market in 2007, the group has failed to generate a profit and has burnt through cash at an alarming rate.
Specifically, during the five years from 2010 Monitise has spent £160m with little to show for it. The group has also raised more than £300m through share placings during this period.
Still, according to the group’s latest trading update, the first under new CEO Elizabeth Buse, it seems as if Monitise is finally starting to get its house in order. For example, Monitise expects that operating and capital expenses during the second half of 2015 will be materially lower than those reported during H1.
That said, the company’s full-year 2015 revenue is now expected to come in below the target announced at the beginning of the year by approximately 10%. Moreover, cash burn has continued. Monitise’s cash balance has declined by 32% to £89m since the end of January.
Nevertheless, the group still expects to be profitable on an earnings before interest, tax, amortization and depreciation basis by 2016.
Bright spots
Overall, there’s no denying that Monitise’s position is precarious. However, the company does have some friends in the form of Santander, one of the Eurozone’s largest lenders, and IBM, one of the world’s largest technology companies.
And as I’ve covered before, these two partnership could be extremely valuable for Monitise. Also, there’s a chance that Santander could make an offer for the company.
So, while today’s announcement is concerning, it’s not time to panic. Monitise has plenty of other options open to it.
