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Should You Buy Monitise plc On Today’s Earnings?

Shares in Monitise (LSE: MONI) fell by 49% to 2.98 pence today, as the mobile payments company announced a disappointing set of results of its 2015 financial year. Revenues declined 6% to £89.7 million, whilst adjusted losses widened from £43.7 million last year, to £55.3 million.

CEO stepping down

CEO Elizabeth Buse will also be stepping down, with deputy CEO and Chief Commercial Officer Lee Cameron replacing her. “Elizabeth will remain with the business until the end of October to ensure an orderly transition and handover of responsibilities” said a statement from the company.

Ms Buse, who had been a former Visa executive, was made co-CEO of Monitise in 2014, and has been on board of Monitise between 2010 and 2012. Following a strategic review earlier this year, she then became the sole CEO only in March this year, following the departure of the company’s founder, Alastair Lukies.

Strategy

Ms Buse has been instrumental in the shift in the company’s strategy, and her departure from the company will create further uncertainties regarding the company’s vision and its future direction. Monitise has been moving away from its original large upfront software licensing model to focus on its subscription cloud-based mobile money platform.

Mr Cameron is unlikely to force through another major strategy shift, and should stick to the plans developed by Ms Buse. But investors will naturally be fearful of another shift in the company’s strategy, as Monitise is only beginning to see the benefits of the change in its direction. Monitise has yet to show the revenue gains that it had promised, but at least operating costs have fallen by 18% in the second half of its financial year.

Profit Warnings

Monitise’s mobile payments service has much promise, but so far it has continually disappointed investors. High operating expenses and investment costs have meant the company has been rapidly burning through its cash pile. But the company still has a net cash position of £88.2 million, which should see the company through to break even, assuming its renewed focus on cost discipline remains intact.

After a series of profit warnings and disappointing revenue figures, two of its key shareholders — Visa and US hedge fund Omega Advisors — have been aggressively selling down their stakes in Monitise over recent months. The loss of confidence in the firm’s prospects by some of its key cornerstone investors should serve as an important warning signal to potential investors. 

Outlook and Valuations

Although analysts are optimistic about the mobile payments market, competition is intensifying with Apple, Google and Samsung launching their rival payment systems. The market is incredibly fragmented, and Monitise has yet to convince banks to subscribe to its new cloud-based payments system. The company no longer expects revenues to grow in its 2016 financial year, although it is still targeting EBITDA profitability in 2016.

With shares in Monitise having fallen by 94% over the past year, valuations in the company look really attractive. Monitise’s market capitalisation of £65.6 million is less than its net cash position of £88.2 million. With the company trading below its cash value, the market seems to be too bearish on the firm’s prospects.

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Jack Tang 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.