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Why Is Monitise Plc Climbing Today?

monitiseMonitise (LSE: MONI) (NASDAQOTH: MONIF.US) rose by more than 5% to 32p this morning, after the firm announced that it had integrated Apple‘s Touch ID fingerprint authentication into the mobile banking app it provides for a Turkish bank.

On the face of it, this is pretty minor news: Monitise says that İşbank, Turkey’s largest private bank, has more than 1.2 million customers who use its İşCep mobile banking app, but only expects the fingerprint authentication to be used by ‘thousands’ of users who have compatible iPhone models.

What’s the big deal?

In my view, the good news today isn’t the İşCep app update, but the principle behind it.

Monitise’s share price has fallen by 34% over the last month, thanks mainly to news that backer Visa has decided to assess its stake in the firm and intends to focus on developing its own in-house systems.

Critics of Monitise have suggested that this could be the beginning of the firm’s demise: it will be squeezed for profit and presence by larger payment processing peers who can develop their own technology.

That view has merit, up to a point, but what today’s news highlights is that many of Monitise’s customers will never be large enough to justify developing their own technology from scratch.

Outsourcing makes sense

For all but the biggest companies, using industry-standard mobile banking technology developed by a trusted third party makes good financial and technical sense.

Visa may be able to justify and afford to develop its own solutions, but there are thousands of banks and mobile networks around the world which cannot do this. Paying to use Monitise technology will add value for these businesses, and I reckon that today’s news has reminded the market of this potential.

Don’t get carried away

However, just because Monitise has an attractive business model doesn’t mean its current valuation is attractive for investors.

A share price of around 32p gives the firm a market capitalisation of more than £600m, despite the fact it lost £60.1m last year, only has revenues of £95m, and doesn’t expect to make a profit until at least 2016.

Monitise’s growth also appears to be slowing: the firm only expects revenue growth of 25% in the current financial year, making its target of growing its user count from the current level of 30m, to 200m by 2018, look very ambitious.

For me, there is too much good news already priced into Monitise shares, especially as the company’s ability to fund itself for another two years isn’t entirely certain.

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Roland Head has no position in any shares mentioned. 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.