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Monitise - trading statement vindicates earlier bearishness, where now?

By Steve Moore | Tuesday 8 July 2014

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

With its shares at 72p in January I warned HERE that although Monitise (MONI) has a number of significant partners, there remains clear execution risk and a competitive environment and that a lack of tangible support for the valuation would likely see the shares hit particularly hard in the event of any upcoming decline in market sentiment. The following updates with the shares currently at 42p following a dismal trading statement today.

On highly bullish market sentiment declining somewhat, the shares fell back - closing at sub 50p yesterday - and today the aforementioned execution risk has hit – with the company announcing that for its year ended 30th June 2014 it “expects EBITDA loss to be in the range of £32-36m, compared to Bloomberg consensus average of £28m, due to the revenue shortfall” (growth of 31%-33% year-on-year to £95 million-£97 million, “lower than previous guidance of approximately 40% due to a faster shift than originally anticipated to the new subscription-based business model”).

In my January analysis I also noted that the last year had seen the forecast for EBITDA break-even pushed out to the company’s year ended 30th June 2015. This has seemingly been pushed out further – with the company today updating that “in FY 2015 Monitise expects revenue to grow at least 25%... FY 2016 is expected to be EBITDA profitable and to see stronger revenue growth”.

Although the company emphasises that it “took the decision to favour longer-term subscription revenue over shorter-term licence income” and that net cash of £144 million “provides balance sheet strength to see Monitise through to cash flow breakeven and beyond”, the extent of the share price fall on the update today does not surprise given that the market cap was still approaching £960 million.

The company may be right to be “excited by the business model we are adopting and believe we are excellently positioned for our ongoing growth” but the valuation looks to still demand near faultless execution and a non-adverse stock market environment - not favourable requirements for ‘long’ investors.

Tom and myself have attracted some adverse comment for our bearishness on this stock. Well the Sheriff and I keep our tin hats on. This business may use the Rob Terry 'victim of our own success' line but, with forecasts for sales hacked back just months after the last hack back, it does not wash.

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