Should You Buy Monitise Plc After Losses Triple?

Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) was one of this morning’s big risers, climbing by nearly 10% — despite admitting that the firm’s losses had tripled during the last six months.

Of course, it wasn’t all bad news: Monitise announced that it will launch a cloud-based version of its Mobile Money platform in April, and said that it has signed a letter of intent with a major European financial institution to roll out Monitise digital banking in several countries.

Both initiatives could generate new growth, and the firm also said that “positive discussions with market-leading players” are taking place as part of its strategic review, which could lead to a sale of the business.

Losses triple

Monitise’s favoured measure of profit is earnings before interest, tax, depreciation and amortisation, or EBITDA.

The firm’s EBITDA loss tripled to £30.8m during the first half, compared to a £10.2m loss reported for the same period last year.

The main element of the increased loss was capital expenditure, which rose from £9.1m to £25.9m to help accelerate the conversion of the firm’s technology into marketable products.

Where’s the cash?

Revenue fell by 8.8% to £42.4m, compared to the same period last year, despite Monitise reporting a 49% increase in the value of payments initiated via Monitise technology, which rose to $101bn on an annualised basis.

Monitise also appears to be struggling to collect payments from its customers promptly: according to today’s accounts, Monitise now has to wait an average of 378 days for its bills to be paid, up from 142 days at the end of last year.

These changes could be linked to Monitise’s changing business model, but I’m always concerned when I see sales falling and debtors rising, as it often causes cash flow problems.

Questionable guidance

Monitise is maintaining guidance for full-year sales of £90-100m and an EBITDA loss of £40-50m this year, with an EBITDA profit expected in 2015/16.

In my view, today’s figures don’t add much credibility to this guidance — revenues will need to rise and spending will need to fall if Monitise is to have any chance of hitting these targets.

Is Monitise a buy?

Monitise is essentially a specialist software developer. Stripping out the firm’s £129m cash balance, the business is valued at £380m — around four times sales — despite continuing to lose money.

In my view this is too much, and I rate Monitise as a sell.

Better buys elsewhere

Monitise shares peaked at 80p, early in 2014. Smart investors sold, locking in a 325% profit in just three years.

I don't believe that gains of this size will be repeated with Monitise -- but they will be with other small, upcoming stocks.

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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.