Monster’s Well Positioned Despite Industry Headwinds And Lack Of Buyers

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MWW: Monster Worldwide logo
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Monster Worldwide

Monster (NYSE:MWW) stock price declined by 18% to $5.40 over the past week as news of two potential bidders being no longer interested. The two potential bidders were TPG Capital and Apollo Global Management LLC. [1] Previously, private-equity firms Bain Capital LLC and Onex Corp. had also passed on the offer. Stone Key and Bank of America Merrill Lynch have been assisting the company as financial advisers since February as it reportedly seeks offers of more than $10 a share.

Even if bidders fail to emerge in the near term, we believe that Monster’s underlying business can still grow and it can remain an important player in the recruiting industry with the further development and marketing of new products like SeeMore and 6Sense (Power Resume Search) as well as an improving economy. While the growing popularity of LinkedIn (NYSE:LNKD) and Facebook (NASDAQ:FB) as alternative venues for job searchers could provide headwinds, we think the company is well positioned to benefit amid a recovering economy. Moreover, as these business conditions improve, we believe that the company will be in a better position to negotiate with potential buyers as new ones emerge.

Below are some trends impact the business currently.

See our complete analysis for Monster

Job markets improve in the U.S.

The company reported that bookings from its North America segment decreased 8.2% in the third quarter primarily because of decreases in the government sector which had witnessed an uptick during the same period last year as a result of the budget impasse in 2011. With the presidential elections over and the economic outlook on a somewhat sounder footing, the company should begin to grow bookings starting next year. Also, the competitive edge provided by its new tools SeeMore and Power Resume Search should allow it to maintain its pricing at roughly the same as current rates which should see it report revenue growth from the segment in 2013.

Meanwhile it will have to contend with growing popularity of LinkedIn and Facebook. While the business models vary, job searchers and recruiters are turning more frequently to these social and professional networking sites. Facebook took another step in the recruitment industry with a recently announced “Social Jobs” app that allows users to browse more than 1.7 million job openings using an aggregator for Monster, Jobvite, BranchOut and other sources National Association of Colleges and Employers (NACE). This move underscores the increasing popularity of social networks as a destination for job search.

International job markets continue to decline

International markets have been the biggest drag on the company’s earnings with Careers-International segment bookings declining by 24%. Bookings in Europe which recently entered a second recession [2] decreased 26.5%. Bookings in Asia decreased 16.8% primarily resulting from decreases in Korea.

A positive for Monster in the Careers-International segment will be the relative unpopularity of social networks as job boards in these markets. An unforeseen improvement in international economy will see it gain the most. The company has started to roll out its SeeMore and Power Resume Search (PRS) in these markets and will benefit from these when the overall economy improves.

A takeover could improve margins

With the company planning to keep looking for buyers, we expect a sale could likely happen. Meanwhile, it 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. As part of restructuring initiatives it is looking to sell off its ChinaHR business as announced in the third quarter earnings call earlier this month. A deal would also give Monster access to deeper pockets which it can use to invest in to additional mobile /social tools and applications in addition to backing marketing initiatives for new products.

An improving U.S. economy and the increasing market acceptance of the new tools support our $7.50 estimate for Monster, which is 40% above the current market price.

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  2. What To Expect From Monster’s Q3 Results
  3. Monster Expecting 14% Top Line Decline In Q3; Randstad Deal On Track
  4. Decoding Monster’s $3.40 Acquisition Price: Is A Failed Turnaround Implied In The Price?
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  6. What To Expect From Monster’s Q2 Results

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Notes:
  1. Monster Said to Find No Bidders So Far, Bloomberg, November 2012 []
  2. Euro zone falls into second recession since 2009, Reuters, November 2012 []