Shifting to a subscription model
Monitise Plc (MONI.LSE) is shifting to a subscription-based revenue model to accelerate customer adoption and drive higher long-term recurring revenues. The new Monitise Central Platform should enable easier access to the Monitise Commerce Network, which in turn should accelerate end-user adoption of m-commerce. The shift is being funded by the placing of 160m shares worth £109m with existing and new shareholders, including MasterCard.
Shifting to a subscription-based revenue model
Monitise has announced that it has shifted from an up-front licence or integration revenue-based model to a subscription-based model. Reducing the high up-front cost of installing the service should encourage more banks to consider outsourcing their m-banking apps to Monitise or using Monitise’s Commerce Platform. This shift is being combined with the accelerated build of the Monitise Central Platform, which will offer a simpler way to connect into Monitise’s technology. While this is likely to result in lower revenues in the short to medium term (as subscription revenues spread over multiple years will take time to compensate for the drop in up-front licence and integration revenues), it should accelerate new customer wins and help customers to launch revenue-generating m-commerce services faster.
Funding the change
The company has placed 160m shares worth £109m with existing and new shareholders and MasterCard. The proceeds will be used to fund platform development and to support the business through the transition in the revenue model, funding the business while the company grows the subscription revenue base. We have revised our estimates to reflect lower revenue growth in FY14 and FY15, the one-year delay in reaching EBITDA break-even and higher development costs. For the first time, the company outlined a five-year target to reach 200m users and EBITDA margins of at least 30% by FY18.
Valuation: Reflects the value of the network
Monitise trades on EV/sales multiples of 12.4x FY14e and 10.6x FY15e (including shares issued in the placing). In the absence of profitability metrics to support the valuation (we forecast EBITDA break-even in FY16), share price appreciation will depend on Monitise achieving its stated targets. Future milestones include Visa Europe’s and Visa Inc’s customers adopting their services, direct sales progress in the US, leverage from sales partners such as IBM, service launches in Asia-Pacific and adoption of m-commerce services. The planned move in CY14 to the London Stock Exchange’s main market should provide support to the share price.
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