With an unsettling employment outlook ahead and after slashing its sales force by almost 7%, Monster’s (NYSE:MWW) stock took a visible hit as the company released its Q4 2011 results. While the stock currently lingers at below $8-levels and peer LinkedIn (NYSE:LNKD) continues to expand, we believe that international revenue growth and healthy margins support the company’s stock to above $10-levels that we currently forecast.
International Career Services Still Show Promise
Monster’s revenues from international career services showed a considerable turnaround in 2011, growing by over 23%, compared to a decline of 36% and 1% in 2009 and 2010, respectively. Last year’s growth came on account of both macro-economic improvements as well as tools like BeKnown that have expanded the company’s reach into mobile and social spaces. While LinkedIn remains strong owing to its social networking reliance, Monster should continue making investments in developing on existing products like 6Sense, SeeMore and BeKnown.
Additionally, despite flat growth in global bookings, emerging markets have shown significant upside, with Indian bookings growing by 16% in Q4 2011 over the same quarter previous year.  By our estimates, Monster should retain a price level around $9.50 even if international job postings stay flat in the long term.
Margin Should be Stable, If Not Rise
With the decision to lay off 400 employees, almost 7% of Monster’s work-force, the company is clearly on a cost-cutting drive. This indicates that Monster is bracing itself for lower sales growth and wants to preserve its margins in the process. Given this trend, current margin levels comfortably support a price level of close to $10 for the company. To reach the current market price of little over $7, EBITDA margins for North American and International Career Services would have to decline to 18% and 12%, respectively, by the end of our forecast period.
Having stated the above, one must acknowledge that Monster is facing and will continue to face fierce competition from LinkedIn and if LinkedIn’s introduces any new products, pressure on Monster will mount and will further challenge its position in the online recruitment market.
We have a revised $10.50 price estimate for Monster’s stock, which is around 44% above the current market price.Notes: