Monster (NYSE:MWW) reported financial results for the first quarter of 2013 on May 2 with revenues down 9% year over year but flat sequentially. The results were helped by a good performance in North America which masked the slowdown in the international business. Monster attributed the weak performance internationally to the uncertain global economic environment which negatively impacted demand for its services. The company also announced the completion of its search for strategic alternatives which include restructuring initiatives and exiting unprofitable markets in Latin America and Turkey, including the sale of its China business. It expects these initiatives to drive profits in the near term.
North America Business At The Cusp Of A Turnaround?
North America revenues were down 3% on an annual basis but up 4% sequentially during the first quarter. The slowdown was a result of lower revenue from field sales customers, partially offset by increased business activity from government and e-commerce sectors. The outlook for the North America business is mixed with the challenging employment market in the United States and rising competition for job listings from social media companies like LinkedIn and Facebook.
On the positive side, the company improved its operating margins from the segment to 10.7% from 2.7% during the same quarter last year. This improvement is attributable to the restructuring initiatives that resulted in a 12% decline in salaries and related expenses. The company also reigned in its selling, general & administrative (SG&A) expenses from the region which were flat year over year. This was due to a new marketing approach to drive site traffic. We expect the company to keep its costs in check in the near term while the improving economic outlook for the U.S. and its neighboring countries should help revenue growth.
International Business Decelerates Further
Revenues from international operations were down 18% on an annual basis primarily because of the continuing weak economic situation in Europe. As a result, revenues from operations in the region declined by 20% y-o-y and 4% q-o-q. Germany, France, the UK, the Netherlands and Sweden – all contributed to the revenue decline. We expect the ongoing wide-scale launch of SeeMore (a semantic search and analytics recruiting platform) and Power Resume Search (an advanced way to rank job candidates using Monster’s 6 Sense technology) in more European countries to help mitigate this slowdown.
Revenue from the Asia-Pacific region was down 10% on annually and 6% sequentially. Operations in India and Korea, which had thus far mitigated the effects of the European slowdown, joined the latter reporting a 10% y-o-y decline in revenues. However, both markets remained highly profitable. The company estimates that the slowdown in the Asia-Pacific region reflects the slowdown in global trade and expects the situation to improve as the global economy picks up pace.
Along with revenues, operating margins from the international segment dropped sharply to to -11.6% from 3% in the same quarter last year. This drop was primarily a result of declining revenues while operating costs remained flat. We expect the company to continue to struggle in Europe where some countries may be facing a double-dip recession. An improvement in the European economy is essential for the Career Services International business to report operating profits.
Flat Job Market Of 2012 To Grow In 2013
The U.S. added 153,000 jobs on average per month or 1.8 million jobs in 2012, similar to that in 2011. With the Federal Reserve looking to keep interest rates ultra-low till the unemployment rate falls to about 6.5%, we expect growth to pick up pace in 2013.  For the unemployment rate to drop to 6.5% from the current levels of 7.8%, it would require approximately 2 million jobs, or roughly what has been created annually for the past two years.  But the difference becomes more pronounced if population growth is factored in. CNN Money estimates that 3.2 million jobs need to be added in 2013 for the U.S. unemployment rate to be at ~6.5% in January 2014. We therefore expect growth to be spread over the next couple of years.
We have a revised $5.80 Trefis price estimate for Monster which is 25% above the current market price.Notes:
- Fed To Keep Rates Near Zero Until Unemployment Drops Below 6.5 Percent, The Huffington Post, December 2012 [↩]
- How to get to 6.5% unemployment, CNN Money, January 2012 [↩]