Monitise Plc: Why The Growth Story Went Bad

It seems like only yesterday that the great dotcom bubble of 2000 burst so dramatically, yet we’re still seeing people piling into high-risk tech growth stories with no unique selling point (USP) and no barriers to entry.

At least, that’s what I see when I look at the Monitise (LSE: MONI) story today.

Offering a system for handling mobile online payments, there’s no doubt that the firm’s offering was aimed at a gap that seriously needed filling, and there have been all kinds of micropayments and online rewards systems since those heady times — I still remember the days when The Motley Fool had offices in the same building as the long-forgotten Beenz!

Big is best

To make it big, a company like Monitise needed to get the support of a major payments handler, and for a while it looked like that was going to happen with Visa on board. But the thing is, the costs of development incurred by Monitise were always going to be small change compared to what Visa could afford, and Visa could drop Monitise like last week’s newspaper and start up its own system without even breaking stride.

And that’s exactly what happened in September, when Visa decided to dump its interest in Monitise and go it alone.

Monitise’s barriers to entry were pretty much non-existent. In fact, I’d say they were actually negative, as any brand new payments offering from a major world finance company was always going to be more attractive to the rightfully-cautious public than something offered by an unprofitable and largely unknown UK upstart.

Profit when?

The result is that earlier rosy expectations have been abandoned, with analysts dropping their forecasts for June 2015 revenue from £166m a year ago to the current £118m. And there’s still no sign of anything approaching a profit.

I reckon Monitise’s only real hope was going to be a buyout bid from a big operator, but it had to happen early in its life when it might have had a genuine early-mover advantage. The company appears to be seeking that buyer now, but it looks like a last-bid attempt to survive, despite its claims on 22 January that “The Board believes that the Company has an exciting future as an independent business, however

The lesson

What’s the lesson for investors? When you see a new start-up trying to make inroads into a business dominated by seriously big players, even if it’s offering to fill a genuine hole, look for an insurmountable USP and some strong barriers to entry. If it doesn’t have them, stay away.

Better still, keep away from the glamorous risk of high-tech wannabes altogether, and stick to proven companies generating superior profits for their shareholders.

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Alan Oscroft 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.