Mobile money companyMonitises(LSE: MONI) shares collapsed by nearly 35% yesterday, afterVisaannounced that it hadhiredJPMorganto investigate options for its 5.5% stake in the business. After several profit warnings so far this year, yesterdays news from Visa was a crushing blow to Monitise and the companys shares have now fallen a staggering 55% so far this year.
Whats more, some City analysts are now calling into question the sustainability of Monitises business model. With losses growing at twice the rate of sales, its easy to see why.
However, for long-term investors, Monitise remains an attractive growth story with huge potential. Recent declines only make the company more appealing.
Its easy to write off Monitise following recent declines but investors shouldnt take Visas decision to sell-up at face value. For example, while Visa and Monitise have worked well as a partnership over the past few years, its becoming apparent that Visa feels threatened by mobile money start-ups like Monitise. Further, the separation of Visa is part of Monitises long-term strategy.
According toAlastair Lukies, Monitises co-founder and joint chief executive,Whats happened today is consistent with Monitises strategy. For many years we were accused of being a Visa shop, and now were an agnostic network.Visa itself has stated that the sale of the Monitise holding is due to Monitisesmaturationas a company.
But as Visa considers its options, Monitise is still signing partnership deals with some huge names. Indeed, in the past four weeks alone Monitise has announced a partnership agreement with IBM and strategic partnership with Santander, the largest bank in the eurozone by market capitalisation. If Monitises business plan was a dud, theres no way IBM and Santander would have agreed to sign deals.
So, with some of the largest companies in the world throwing their weight behind Monitise and the companys business model, its hard to bet against the company.
However, the company is trying to break into a tough market and this will take time. With that in mind, investors should take a long-term view with regard to Monitise. Theres no doubt that the company has potential, if the company can hit its own self-imposed profitability targets, then the skys the limit.
Specifically, the company is aiming to become profitable on an earnings before interest, taxes, depreciation and amortization basis by 2016, with a sustainable gross margin above 70%. Revenue growth of at least 25% is expected for 2015. With group net cash of 146m as at 30 June 2014, Monitise has plenty of room to manoeuvre and execute its growth strategy.
Only you can decide
Monitises growth story still has a long way to go. However, only you can decide if the shares deserve a place in your portfolio.
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Rupert Hargreaves 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.