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Is Monitise Plc A Buy After The IBM Deal?

Mobile money company, Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) signed a game-changing deal with global tech behemoth IBM last week.

The two companies signed a partnership deal, which gives Monitise access to IBM’s client base of big corporate customers using cloud-based technologies, including global banks. 

As part of the deal, 200 of Monitise’s staff will move over to IBM in order to help the company integrate and operate with big blue. As one of the largest tech companies in the world, with over a century of history behind it, and the support of Warren Buffett, a partnership with IBM is defiantly something to get excited about.

What’s more, IBM does not enter into partnerships lightly, so the company must see some value in a tie-up with Monitise. The question is, should you buy in?

Do it yourselfmonitise

This deal with IBM shows that Monitise has created a platform that IBM can find value in. Further, the tie-up indicates that Monitise has created something that cannot be easily replicated.

Indeed, IBM generated over $17bn in cash from operations last year, so the company is hardly strapped for cash and could go out a create a Monitise-style platform if it wanted to.

For this reason, it’s easy to conclude that IBM can see value in Monitise and the company’s current structure. If not, ‘Big Blue’ could have quiet easily taken a different route. 

Far to go

Still, Monitise is hardly what you would call a mature business. The company is heavily loss-making and is not expecting to make a profit until 2016. 

Full-year results are expected on the 15th of September, where management has pencilled in 30% year on year revenue growth. Last year’s revenues came in at £73m, on which an operating loss of £46m was reported.

Unfortunately, with no income expected for the next few years it’s hard to place a value on Monitise’s shares, a major sticking point when deciding whether to buy or sell.  

Management exodus

And recently the company has been hurt by a management exodus. Only yesterday, Chief Information Officer Mike Keyworth announced that he was standing down and relinquishing his position on the company’s board, with immediate effect. Mike has been with Monitise since 2004, although he will stay on as the company’s technology adviser. 

In addition to Mr Keyworth’s departure, Victor Dahir, who is Visa’s nominated member on Monitise’s board, resigned at the end of August. Moreover, David Dey, the senior independent non-executive director will leave after the company’s AGM on the 4th of November. 

To lose one board member is careless, but to lose three within a few weeks is concerning. Nevertheless, Monitise has also announced that Mike Dreyer, previously Global Head of Technology at Visa, will be joining the company as President, Americas, in charge of North American accounts. 

What to do

There’s no doubt that Monitise’s deal with IBM is great news for the company and bolsters the case for investment. However, as Monitise is loss-making, it’s almost impossible to place a valuation on the company’s shares and the recent management exodus is worrying. 

That said, the company does have potential, so if you’re willing to take the risk, Monitise could be a good bet.

Nevertheless, I strongly recommend that you do your own research before making any trading decision and Monitise may not fit your own personal risk profile.  But there are other opportunities out there. The key, when searching for growth stocks, is looking under the radar. 

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Rupert Hargreaves owns shares of International Business Machines. The Motley Fool UK owns shares of  Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.