Shares in mobile payment specialist Monitise (LSE: MONI) edged higher this morning after the firm published its half-year results that were broadly in line with expectations.
Revenue for the first half of the year was £33.4m, down by 21% from £42.4m during the same period last year. Losses from earnings before interest, tax, depreciation and amortisation (EBITDA) were £20.2m, reduced from an EBITDA loss of £30.8m during the first half of last year.
Importantly, Monitise expects the second half of the year to generate an EBITDA profit. The firm still has a cash balance of £53.4m and says it’s “well-funded to meet its future plans”.
Good news?
The shares’ positive reaction will be a relief for shareholders who have seen the value of their investment fall by 92% over the last year. However, I do have some concerns.
Monitise is pinning its hopes for the future on its cloud-based FINkit subscription platform. This is designed to replace the firm’s older Monitise Enterprise Platform (MEP) in Europe and the Vantage Platform in the Americas.
However, the majority of revenues still come from the MEP and Vantage platforms. FINkit deployment is at an early stage and the level of take-up by existing customers is uncertain. In today’s results, Monitise said:
“As some existing MEP contracts come to an end, and while we seek to transition these clients to FINkit, we have plans in place to manage the cost base and the potential impact on EBITDA.”
This suggests to me that Monitise isn’t entirely confident that existing customers such as RBS and Santander will be happy switch from MEP to FINkit.
Can Monitise really make a profit?
One of the ways in which Monitise hopes to achieve an EBITDA profit this year is by continuing to cut costs. However, my calculations suggest this will be quite a challenge.
The firm’s total costs during the six months to 31 December were £53.6m, 23% less than during the same period the previous year.
Monitise expects to reduce costs by a further £3m per month during the second half of the financial year. This suggests that total costs should fall to £35.6m. This is still more than first half revenue of £33.4m.
Monitise says that revenue is expected to be “broadly similar” during the second half. That language doesn’t suggest to me that the firm expects much sales growth. Yet I estimate that for costs to fall below revenue, sales growth of at least 6.5% will be needed during the second half of the year.
I’m not sure how Monitise can be confident of positive EBITDA during the second half when its own forecasts suggest that costs may still be higher than revenue during this period.
But there’s plenty of cash…
It’s true that Monitise does still have plenty of cash. The firm reported a cash balance of £53.4m today, albeit down from £88.8m six months ago.
If cash burn does slow during the second half, as expected, then Monitise will gain time to make a success of its FINkit solution. However, in my view there’s a definite risk that sales will continue to disappoint and that Monitise may eventually run short of cash again.
