Monitise plc (MONIF) is a British company in the mobile payments business. They create and sell software that allows banks to accept payments from mobile phones – both iPhone and Android (and presumably other platforms). They were one of the first movers in that business and hold many patents, have contracts with many major banks worldwide but apparently have been poorly managed. They are what I would presume to be a ”small cap”, due partly to the fact that their stock has sunk from about $1.35 to today’s price of 23 cents. You can read more about the company on Seeking Alpha and also here at the Gumshoe (last discussed here in 2013).

That sounds like a typical failing penny stock, but the strange part of this story is that Leon Cooperman (Omega hedge fund – in the $10b league) has been and still is apparently very heavily invested. In fact the last I read is that he bought $42 million more in late 2014 when the stock was already down to its present level. Cooperman is no fool – he started with nothing and is considered one of the most experienced senior investors in the business (check him out on Wikipedia). What does he know that we don’t?

If you read all the articles, and especially the comments, on Seeking Alpha (particularly the most recent one by Paulo Santos. Jan. 23, 2015, you will get both sides of the argument. Apparently few people understand what their business really is except that it has to do with mobile banking. When Apple Pay was released many investors apparently dumped MONIF believing it would disappear under the Apple steamroller (luckily I sold out as well). However the two technologies are not competitors but rather complimentary. Apple provides the means for a debtor to pay his bills via phone while Monitise provides the means for the bank to accept those payments.

One argument against MONIF is that Apple can easily create the software to replace MONIF’s product, and probably already has., but they would no doubt limit the receiving bank to Apple PAY user’s payments only, whereas the MONIF software apparently can accept payments from any smartphone platform (Android, etc.) which greatly benefits the bank. If Apple were to restrict the bank to using only its software, that might not be legally possible (restraint of trade) and certainly undesirable for the bank. The same arguments apply to any other proprietary software (VISA, Mastercard, etc.) thus giving Monitise a strong monopoly position in its market.

Another twist to this saga is how Monitise gets paid. Initially they licensed their product to the banks, as is customary with software. Then about the time their stock began its rapid descent they switched to a fee per transaction system, which apparently hurt them financially short term, but obviously management decided this was the smart long-term move, betting on a rapidly growing payor base.
Was this switch the real cause of investor loss of confidence? Or was it the divestiture of VISA’s 10% investment? (Other large investors remained on board, however).

Another factor: Most of Monitise’s business is outside the U.S., largely in South America, Europe (especially Scandinavia) and probably in Asia also. Many of the customers are major banks and credit unions.

At the present stock price this could be a major M&A opportunity for one of the financial giants, or the company may just be feeling growing pains, or it may only have 2 more years to live (per Mr. Santos’ analysis).

I would appreciate a discussion on this by those of you who have looked into this in greater depth or have additional thoughts to contribute. There is a mystery here that needs solving and could result in a multi-bagger.

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.