The U.S. economy added 169,000 jobs in the month of August, but the unemployment rate remained roughly flat. Although things are looking better, the U.S. government needs to tackle the debt ceiling issue in the near term. This could be bad news for Monster which depends largely on North America for its profits. The region accounts for almost 70% of the company’s value and is critical to its survival given the declining business in international markets. The online hiring activity slowed down in India in July, which is a troubling sign since India is one of the few profitable markets for Monster in Asia.
Global hiring trends suggests that Monster lacks on several fronts and needs to be much more competitive. We believe that the company’s business may continue to suffer regardless of the U.S. economic activity unless it makes some drastic changes to its business model and services.
How Federal Reserve Is Thinking About The Employment Outlook?
The U.S. added 1.8 million jobs in 2012, which was flat against the previous year. The Federal Reserve expects the unemployment rate to fall from 7.3% in August 2013 to 6.5% – 6.8% by the end of 2014, and predicts the economic growth to pick up next year. For the unemployment rate to drop to these levels, the U.S. would require approximately 1.6 to 2.5 million additional jobs assuming that the total labor force participation rate and population remains constant. This seems achievable over the course of next 1.5 years.
The mitigation of policy uncertainties could translate into a spurt in hiring activities going forward. The first signs of an improvement were witnessed in the Bureau of Labor Statistics’s January Employment Situation Summary. The bureau reported a gain of 157,000 in total non-farm payroll employment. Though the number wasn’t large and as a result did not impact the unemployment rate, the distribution of the growth in various sectors looks promising. The growth in retail trade was particularly interesting and wholesale trade sectors even after the end of holiday season. The figure jumped in February to close to 340,000 and has remained more than January number for the most part since then. Total non-farm payroll employment increased by 169,000 in August.
An improvement in the job market would give both Monster and its competitors a boost. Before that happens, the U.S. government needs to take measures to expand the debt ceiling that as this could derail economic growth and cause stress in the financial markets, which in turn would negatively impact Monster’s recruitment business.
Monster Cannot Expect Much
While we expect that Monster’s semantic search and cloud based services to differentiate it from its competitors to some extent, global hiring trends dictate that the company is losing its edge. This implies that it may continue to lose business despite growth in the U.S. economy. If the company’s job postings continue to decline, our price estimate can see a downside of roughly 15%.
Monster is falling behind in the race for grabbing $27 billion+ global talent acquisition market where LinkedIn has set new standards. Employers are increasingly using data to make more informed hiring decisions, and this is where LinkedIn has a huge advantage over Monster. Additionally, many LinkedIn members are employed and are known as “passive candidates,” the kind of candidates recruiters covet since conventional wisdom is that the best people already have jobs. Monster does not have a similar network as Monster.com primarily attracts candidates when they are either unemployed or are considering changing their jobs. This suggests that in a case where there aren’t many ‘explicit’ jobs in the market, LinkedIn can still grow its recruitment services business. In essence, Monster’s business model is getting outdated and the recruitment industry is rapidly expanding beyond traditional job boards.
Our price estimate for Monster stands at $5.65, implying a premium of about 20% to the market price.