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The share price of Monitise (LSE:MONI), the AIM-listed mobile telecommunications company have been making a comeback today after falling dramatically from yesterday’s close at 70.50 to 65.52 by 8:25 GMT. At the moment (3:39 pm), the shares have rallied, but are still more than 2% down on the day. This activity may seem puzzling for anyone browsing the headlines on the financial pages and who reads that the company’s latest operational report announced a significant double-digit increase in revenues.
Let’s pause a minute for a short quiz. One of the many headlines this morning proclaimed “Monitise H1 Revenues soar 67% to GBP 46.5 Mln.” See if you can guess the number of minutes between the posting of the following headlines.
- Monitise Announces Dramatic Increase in Revenues
- Monitise Has Double-Digit Growth for Third Consecutive Year
- Monitise First Half Revenues Rise 63%
If you guessed less than 10 minutes, you would be wrong. In fact, if you guessed less than 60 minutes, you would also be wrong. The third of the above headlines was published 537,120 minutes ago and the first of the three was published 1,127, 520 minutes ago. In the interest of time (no pun intended), let’s just say that the second headline occurred sometime in between – 17 July 2012 to be exact. For those who do not have a calculator near at hand, we are talking about a period that extends back to 14 December 2011.
I want to use Monitise as a case study today to urge readers to dig beyond deep to deeper. First of all, let’s take a minute to understand what Monitise is. “Monitise’s flagship product, Mobile Banking, connects customers to their bank accounts and credit cards at all times via their mobile device. The product offers a range of services including bank and credit card management, mobile top ups, transfers, payments, and savings and lending product management. Various financial institutions can use the product to offer customer alerts or customer service and sales opportunities like card activation, lost or stolen card management, and personalized offers.” That’s not the whole story, but you can find a broader overview by clicking on that quote.
When a company generates revenue growth in the double digits, that is something that should raise some eyebrows and even turn some heads. For Monitise’s fiscal year ending 30 June 2011 revenues jumped in excess of 153% from £6.02 million to £15.8 million. The following year, revenues rose 136% to £36.1 million. That was followed in 2013 by a 101% increase to £72.8 million. During that same period share prices increased by 58% from 19.00 to 30.00 during the year ending 30 June 2011. During the next year, the stock took leaps and dives, setting in with a 10% increase at the year end. By the year ending 30 June 2013, the share price had gained another 9.85% to 36.25. By 14 January this year it had hit a record high of 79.00.
But here’s the problem. Continuing to consider the same periods of time, the company incurred consecutive losses of £17.00 million, £16.91 million, and £51.05 million. Now, although the company has reported a 67% increase in revenues for the first half to £46.5 million, that revenue gain is accompanied by a pre-tax loss of £23.3 million in spite of operations with an enviable gross margin of 73%! On a straight forward basis, Monitise should expect to finish the year with a £46.6 million loss. Though the company touts a reduction of loss per share from a 2.6 pence to 1.4 as a positive, that may be a positive if you only own one share, but a thousand shares here and a thousand shares there, and those pence begin to pound.
Monitise is a big player (with a market cap of £1.2 billion) in a rapidly expanding industry. Their report this morning said that “Monitise continues to set the pace in global innovation with respect to bringing to market world-class solutions and capabilities.” Regardless of the great vision and the potential that Monitise appears to have, continuing to lose money whilst operating at a 73% gross margin, absolutely destroys what might otherwise be a compelling argument to invest.
Something is very wrong in this picture. Caveat emptor.
