New Tools Are Showing Some Promise For Monster’s Future

MWW: Monster Worldwide logo
Monster Worldwide

Monster Worldwide’s (NYSE:MWW) stock price has been volatile over the past year, hitting highs of $10 in late March and a low of $5.71 in August amid growing speculation about the fate of “strategic alternatives” it started looking at in February. [1] The company hired Stone Key Partners LLC and Bank of America Corp.’s Merrill Lynch to help review these alternatives. [2] We value the company at $9 on an improving job scenario in the U.S., and the popularity of its new tools. While undervalued the company faces threats from social media companies like LinkedIn (NYSE:LNKD) and Facebook (NASDAQ:FB) that are becoming alternatives to job searchers.

See our complete analysis for Monster

Job markets improve in the U.S.

The Monster Employment Index U.S. is a monthly gauge of U.S. online job posting activity. The index grew 3% annually in September as the retail trade and construction sectors led hiring. The leading job markets in New York and Los Angeles grew and could signal a similar growth across other markets in the coming months. With the holiday season soon arriving, the retail trade sector is expected to continue to lead the hiring even as the housing sector continues to mend and drives hiring in the construction sector.

We expect this growth in hiring to translate into an increase in the number of posting on company’s portals. We currently estimate the number of new job posting on Monster’s North American sites to grow to 1.24 million by next year.

Situation in international markets worsen

The Monster Employment Index Europe, an index similar to the U.S. index but aimed at the European market, showed a decline of 2% in September compared to August. Germany continued to grow, albeit at a slower rate. It was followed closely by Belgium and U.K. The primary worries were France and the Netherlands which have led the decline for the second consecutive month. Non-core sectors like environment, urbanism, education, training and library are the only ones which exhibited growth and this could signal a further slowdown in coming months. Combined with a slow down in China where bookings fell 23% in Q2 2012, we expect the international markets to continue to be a worry for the company. If the overall number of posting from international markets were to hold steady at 2011 level, it would present a 5% downside to our current estimates.

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SeeMore and Power Resume Search gain popularity

The company is banking upon its new products SeeMore and Power Resume Search to drive future growth. Though these were slow to take off in the U.S., their popularity has increased recently and the company is being approached by enterprises and hiring firms which had initially decided against using these services. This encouraging trend has prompted the company to launch these services in more markets, particularly in Europe where they are facing their toughest challenges. As the sole provider of such services, the company has priced them at a premium which had initially deterred users, who are now returning realizing the utility. The company hopes the services will help it overcome the challenges posed by LinkedIn and Facebook who are yet to offer intelligent and cloud search services.

A takeover could improve margins

The company has significantly reduced its headcount to around 4,000 employees excluding its China operations, making it clear that the company is actively trying to improve cash flows by reducing expenses. Besides, an acquisition would likely further reduce these operating expenses as certain variable cost items benefit from economies of scale. The deal would also give Monster access to deeper pockets which it can use to invest in mobile/social based tools and applications.

We currently believe that career services and popularity of the new tools justify our $9 estimate for Monster, which is 20% above the current market price.

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  1. Monster Worldwide Put ‘Strategic Alternatives’ On The Table,The Wall Street Journal, March 2012 []
  2. Monster Worldwide Hires Bankers For Strategic Plan; Shares Jump, Bloomberg, March 2012 []