Monster’s (NASDAQ:MWW) shares experienced a strong rally following the company’s Q4 2013 earnings announcement last week. Despite the fact that fourth quarter tends to be slow in terms of recruiting, Monster managed to post sequential growth in revenues, EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin in North America. International results were a mixed bag as small sequential growth in revenues was accompanied by a decline in EBITDA. Nevertheless, we believe that the company still has a chance of reviving its business and address the $27+ billion global talent acquisition market where LinkedIn (NASDAQ:LNKD) has set new standards. Monster needs to become more data centric, run efficient algorithms, redesign its user interface and focus on mobile expansion.
We are reviewing our price estimate for Monster in the light of the recent earnings, and will have an update ready soon. Our current price estimate for the company stands at $6.50, implying a discount of about 10%-15% to the market price. Here is our key takeaway from the recent earnings release.
What Fueled The Market Sentiment?
Monster demonstrated signs of revival as the year-over-year revenue decline moderated and there was some sequential improvement, both in the U.S. and international markets. The company grew its sales in North America by 1% over Q3 2013 and remained flat compared to Q4 2012. This was accompanied by a similar sequential growth in international business, which was otherwise down 14% year-over-year. However, given the challenge that Monster has faced in recent quarters from LinkedIn (NASDAQ:LNKD) and other competitors, the year-over-year decline was inevitable and widely expected. The sequential increase, however, came as a pleasant surprise, suggesting that the business may have bottomed out.
Overseas Revival Is Key
Monster’s EBITDA margins increased in North America, both sequentially as well as compared to the fourth quarter of 2012. However, the same did not happen in international markets, despite some improvement in Europe. The fact remains that Monster’s international business has suffered a lot in recent years and its revival will be critical to the company’s future growth.
Monster’s sales in Europe and Asia have suffered due to adverse macroeconomic conditions, as well as due to recruiters shifting to new and innovative platforms such as LinkedIn. Amid these difficulties, the company decided to sell 49% of its stake in JobKorea and is forming a joint venture with Alma Media in Europe. In this venture, Monster will combine its remaining Eastern European businesses including Czech Republic, Hungary and Poland, with Alma Media’s businesses in certain countries and own 15% stake.  The downsizing of business in international markets stands in stark contrast with what its rival LinkedIn is doing. Monster’s problems are not just driven by the macroeconomic environment, but are deeply stemmed in its own business model.
To rectify the situation, the company is working on several strategic initiatives. It plans to give more details around these initiatives in May 2014. Its ‘Apply with Monster’ strategy is bearing fruits as the company has already processed 1 million applications. A lot needs to be done, especially in Asian markets including India. Reigning in costs by exiting unprofitable markets has already turned out to be a good move as the company expects to earn profits next quarter. Going forward, Monster will need to develop a competitive edge in terms of technology and user interface, and leverage the power of social networking to provide better experience to users. This is where LinkedIn has done a brilliant job. We believe that even though LinkedIn is making its advances, ‘job postings’ market is not going to disappear and Monster still has a chance to prove its worth. It can do so by building more efficient algorithms and processes that connect relevant candidates to relevant jobs. It also needs to step up its mobile efforts as only 25% of its traffic comes from mobile compared to more than 40% for LinkedIn, and over 75% for Facebook and Twitter.Notes:
- Monster’s Q3 2013 Earnings Transcript [↩]