Why You Should — And Shouldn’t — Invest In Monitise Plc

Today I am looking at the some of the problems facing tech play Monitise (LSE: MONI).

Brace yourself for massive volatility

Shares in Monitise have endured a tumultuous ride during the past four weeks, taking in multi-year lows of 4.53p per share in early August — the cheapest since May 2009 — before rebounding 62% in little over a week, to 7.34p.

But the long-term trend remains very much down, and Monitise has shed almost nine-tenths of its value during the past 12 months alone. Back in July sentiment for the mobile banking specialist received a dent after Visa announced it was cutting its stake in the business, and followed up by slashing its holding to 3.88% earlier this month. And this week hedge fund Omega cut its stake in Monitise yet again — it now holds less than 10% in the software builder.

Competition upping the ante

This move comes as little surprise given that Visa is developing its own in-house mobile payment system. The US giant has a contract with Monitise that runs until March 2016, but the likely loss of such a prestigious customer is likely to put the mobile payment provider’s plans to turn a profit next year under severe pressure.

At the same time Monitise is also facing creeping competition from the introduction of Apple’s payment platform, not to mention that of fellow tech giant Google.

Big players keeping the faith

However, it is worth noting that Monitise remains a hot selection for many of the world’s biggest financial institutions. Just last month Santander announced it was launching a cash pool scheme with Monitise and Kalixa Payments Group — labelled KiTTi — which allows groups of users of Apple and Android-powered smartphones to share a pot of ‘virtual’ cash.

On top of this, French banking giant Société Générale also launched its pan-African mobile banking system in July, a system that it developed with the support of IBM and Monitise.

Cash under the cosh

Still, Monitise does not have the benefit of a robust balance sheet to fall back on as it seeks to transform its fading lustre, either, as it switches to its focus towards developing standardised systems from bespoke platforms. Gross cash stood at $88.6m as of June, down from $129m at the close of December.

With the firm having downgraded its revenues outlook yet again in July — sales for the year ending June are expected to have registered between £88m-$90m, down from the $90-$100m prediction made a few months earlier — Monitise could find itself in dire straits should the top line struggle.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise, Apple and Google. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.