Monster (NYSE:MWW) is an online job posting and recruitment service that operates the website Monster.com. In the online recruitment space, Monster competes especially with social networking sites like LinkedIn, Facebook and Twitter.
Monster’s profit margins rose during the second quarter of 2010, particularly in North America. In the company’s recent quarterly earnings announcement, management cited cost cutting and the success of its higher-priced Power Resume Search service as reasons for the margin expansion.
We expect Monster’s margins to reach 29.5% by the end of our forecast period, driven in part by the integration of Yahoo’s HotJobs division, which Monster recently acquired. We see a 15% upside to the $12 Trefis Price estimate for Monster’s stock in the event that margin growth exceeds our expectations. Our analysis follows below.
Monster upside
Monster’s EBITDA margins declined drastically in 2009 due to the weak North American job market. Margins slid from around 37.5% in 2006 to 12.5% in 2009. However, margins recovered in the first half of 2010, reaching 25% in the second quarter.
We expect Monster to post profit margins of 17.5% for the full year 2010, rising to 29.5% by the end of our forecast period. In the event that Monster’s margins regain their 2006 level of 37.5%, we see a potential 15% upside for the company’s stock.
You can drag the trend-line in the chart below to create your own margin forecast for Monster and see how it impacts the share price.
Why margins could expand
HotJobs acquisition: Last February, Monster paid $225 million in cash to acquire Yahoo’s HotJobs division. Monster expects the acquisition to close during the third quarter of 2010, pending regulatory approval. On an EBITDA basis, the company expects HotJobs to earn between $20 million and 40 million in 2011.
HotJobs posted revenues of $100 million in 2009, when it was still part of Yahoo. Taking the mid-point of Monster’s earngings outlook for HotJobs, we estimate that the division will realize an EBITDA margin of about 30%. Hence, HotJobs should boost Monster’s profitability going forward.
Power Resume Search: Power Resume Search is an innovative service that Monster launched in November 2009, based on the company’s patented 6Sense technology. In another article, we explained how 6Sense works more efficiently than traditional resume search software. As a result, 6Sense should boost Monster’s revenues from recruiters by making it easier for them to find suitable candidates in less time.
Monster sells Power Resume Search at a 30% premium to its traditional search product, which largely explains the company’s increased profitability in the second quarter of 2010. Yet Power Resume Search accounted for only 40% of Monster’s total search licenses last quarter. We expect growing demand for Power Resume Search going forward, which should further boost Monster’s margins.
You can see the complete $12 Trefis Price estimate for Monster’s stock here.
