Until today, 2014 had been a very disappointing year for investors in Monitise (LSE: MONI). Thats because shares in the mobile payment solutions provider had fallen by around 30%.
However, todays news that Visa, a major shareholder, is reviewing its investment have sent the shares tumbling even lower and has made 2014 even worse for investors in the company. In the year-to-date, Monitises shares are now down 48% (at the time of writing).
So, what does this mean for current investors? And, perhaps more importantly, is Monitise worth owning?
Clearly, news that a major shareholder is reviewing its5.5% stake is not good news for any company. However, for a young company likeMonitise, it could prove to be even worse. Thats because it is still at a very early stage in its development and is arguably more reliant upon investors now than a more mature company would be. So, uncertainty surrounding a key stakeholder, which first invested in the company in 2009, is bound to have a seriously negative impact on the share price.
Mobile payments have huge potential. The vast majority of people in developed (and, increasingly, developing) nations use smartphones everyday for a wide variety of tasks. So, there seems to be an obvious opportunity for a company such as Monitise to benefit from a gradual shift away from plastic and towards touchscreen when it comes to making payments.
Furthermore, with internet and mobile banking becoming increasingly popular, there is huge growth potential for Monitise to service this demand. It already partners with major financial institutions such as RBS, so it appears as though the company has a bright future in this regard.
Despite this, Monitise continues to make a loss. Indeed, it has made a loss in each of the last five years and is forecast to come no closer to making a profit next year. So, the backing of investors becomes even more crucial hence the dramatic share price fall today.
The question is, though, can Monitise ever deliver a generous profit? As mentioned, there is clear potential in the space in which Monitise is operating, and,on the face of it, there seems to be sufficient demand right now to create a viable, profitable business.
Certainly, the shift towards mobile is set to continue and has not yet peaked, but it appears as though mobile banking and mobile payments are sufficiently well-known about for there to be a profitable business opportunity in this space.
In other words, while the opportunity for Monitise looks set to improve, will the improvement be sufficient to enable it to deliver vast profits moving forward from its current level of losses? Investors, it seems, have major doubts about this key question and, now that Visa looks set to pull out of the business, Monitise could see its share price weaken even further moving forward. As a result, it could be worth selling even after such a huge fall.
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Peter Stephensowns shares in RBS. 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.