The tug of war over Monitise Plc (LON:MONI) (OTCMKTS:MONIF) is intensifying between those long the stock, such as Leon Cooperman of Omega Advisors, and those short, which includes Tiger cub Philippe Laffont of Coatue Management, a hedge fund well known for its focus on technology stocks.

Chart via Novus Research


As previously reported in ValueWalk, Monitise is a firm engaged in automating the banking process. Monitise Plc (LON:MONI) (OTCMKTS:MONIF) provides both online and mobile software solutions to encourage non-branch banking, which major banks in the UK have predicted will come to an end.

Technological displacement is frequently accompanied with volatility and the past few weeks have been no exception for Monitise.

Monitise bear case

Bears cheered for the worst in Monitise Plc (LON:MONI) (OTCMKTS:MONIF) the past few weeks as a volatile period of transition occurred as Monitise adjusted its revenue stream from a license-based, front-end revenue model to one focused on subscriptions and the sharing of revenue on the back end. BTIG Research notes the transition has “been less smooth than management had hoped.” The firm, which has a buy rating on the stock, said “one element of the MONI story that remains unchanged is the magnitude of its opportunity set.”

This “opportunity set” was on display yesterday in an article published yesterday by McKinsey & Company’s ‘Tunda Olanrewaju.  While placing the importance of the transition to digital for European banks into perspective, Olanrewaju emphasized the snails pace at which many the banks have been to adapt the new technology. In putting a spotlight on both how critical it is for European banks to adopt a robust digital strategy and pointing out the extent to which the banks are lagging, the article serves to underline the opportunity that lies ahead of Monitise Plc (LON:MONI) (OTCMKTS:MONIF) to help banks to navigate the changing environment.

Risks for financial transactions

The McKinsey article paid scant attention to the risk hackers poise to financial transactions other than drawing a comparison to the airline industry. “Some banks point to security and risk concerns as justification for their slow approach, but this is a contrast to other industries,” the McKinsey article noted. “The airline industry, arguably beset by even stronger risk concerns, has automated just about every aspect of its customer experience in the last ten years, boosting customer service without compromising safety. Banks can do the same. What’s more, the effort is likely to pay for itself—and then some.”

The article did not mention that the core experience on a plane still takes place through human interaction while online and mobile banking eliminates this core human experience.

Possible upside in European banks

The McKinsey article was written with a strong degree of inevitability. “The good news is that there is plenty of upside awaiting those European banks willing to embrace it,” Olanrewaju writes. “The bad news is that change is coming whether or not banks area ready.

“It’s fair to say that getting digital banking right is a do-or-die challenge … once a credible digital-banking proposition exists, customer adoption will be breathtakingly fast and digital laggards will be left exposed,” the article says, as if threatening those banks who do not climb aboard.

Short sellers have other ideas.

Laffont isn’t the only one betting the stock price will fall. The largest short seller is JPMorgan’s UK asset management division, which has $21 million in short exposure. This is followed by hedge fund Jericho Capital partners, with nearly $18 million, Coatue Capital’s $14 million short exposure and perennial short TT International and their $8 million short.