Why Monitise Plc Is Down 48% This Year

monitiseThe word roller-coaster is probably overused when it applies to share prices, but it’s a pretty apt description of what Monitise’s (LSE: MONI) shareholders have had to endure in 2014.

Starting the year at 66p, the shares peaked at over 80p in early January, and were at much the same level up until March. But it has been mostly downhill since then, and the shares even touched a low of 26.25p last week. There has been a partial recovery since then, but at 34.5p the shares are down by nearly a half this calendar year.

Monitise, which produces mobile banking solutions, was spun out of Morse (the IT company, not the TV show) in 2007, and it has become a firm bulletin board favourite. However, while Monitise’s revenues have grown strongly each year, the estimated time when it turns profitable has been repeatedly pushed back.

Starting strong

This year actually started pretty well for Monitise. Results for the half year ended 31 December 2013, released in February 2014, showed revenues up 67% and reduced losses.

The following month, a switch to a subscription-based model was announced at the same time as a fundraising at 68p per share. A total of £109m was raised, substantially shoring up the company’s cash balances.

Growth downgraded

The shift from upfront licence revenues to ongoing subscriptions meant revenue growth expectations for the year to 30 June 2014 had to be scaled back from 50% to 40%. And there was a further reduction to 31%-33% in July, which Monitise said was due a faster than expected uptake of the subscription model.

In the end, revenues for the year to 30 June 2014 came in at £95m, representing growth of 31%, i.e. the lower end of forecasts. The  loss for the year was a chunky £60m. However, despite the declining growth forecasts for this year, Monitise is still sticking with its forecast of EBITDA profitability in 2016. It has a cash cushion of nearly £150m to rest upon in the meantime.

One in, one out

The last month has seen one major new partner, IBM, join the Monitise stable, but one long-standing backer, Visa, announce its plans to sell its 5.5% stake while also looking to develop more mobile banking solutions in-house. News of the latter caused Monitise’s share price to fall by a third in one day.

Monitise feels like it is at a crossroads right now. It still commands a valuation of £700m, but I suspect investors will punish it severely if there are any further setbacks regarding its predicted profitability. However, if Monitise’s longer term forecasts for 2018 come to pass, today’s share price could prove an attractive entry point.

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Stuart Watson does not own any share mentioned in this article. The Motley Fool UK owns shares in 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.