Monster’s Revival May Have To Wait

Monster’s (NASDAQ:MWW) stock fell following its Q2 2014 earnings announcement. The results were weaker than expected and the company lowered its outlook for the third quarter. This didn’t resonate well with investors considering that Monster’s results in the last two quarters had indicated that its business was on the cusp of revival. We have updated our price estimate for the company to $6.91, which implies a premium of about 25% to the market price. Competitive pressure is increasing and the economic environment in Europe remains challenging. However, the company is taking certain steps which may bear some fruit in the long run. Things are not looking too good for Monster right now, but if the new products click, it could well get back to sequential growth from Q4 2014. Here is what went wrong with Monster in the second quarter and our take on the company’s overall prospects.

See our complete analysis for Monster

What Went Wrong With Monster In The Second Quarter?

Monster hit a road bump in the second quarter of 2014 due to increased competitive pressure and weaker than expected business in Europe. While North America grew slightly year over year, revenues in Europe saw both sequential and year-over-year declines which were higher than we expected. The company stated that this was primarily due to downward pressure on pricing, resulting from growing competition in the recruitment industry. It also appears that Monster has been relatively slow in terms of adapting its products and services to the changing recruiting environment. The hiring industry is increasingly moving towards leveraging social profiles and platforms. Until Monster can harness this shift, its business will remain subdued. The company mentioned that it has been realigning its sales organization and increasing the headcount, and this will have a negative short-term impact on revenue growth. The logical conclusion is that Monster wants to focus its sales efforts on pushing new products, which may take a while to find acceptance among recruiters and job seekers.

Why We Are Still Above The Market Price?

While there is doubt about Monster’s future, we believe that there are certain factors that may help it revive its business.

Monster is significantly increasing the number of job postings on its portal. It will source jobs from both regular and social sources, and leverage the latest trends in hiring. The company grew the number of job postings on its network in the U.S. from 250,000 in January 2014 to over 1.5 million by mid-May, and has over 3 million job postings currently. ^{[1] [2]} It plans to have more than 6 million job listings across its global network in near term. ^[1] This is impressive considering the global market for unique job listings could be somewhere around 6 million, according to our estimates (see Looking At The Global Opportunity As LinkedIn Expands Its Job Listings).

The company is also bringing in the social aspect as far as its job advertising is concerned. It stated that it ran beta test for Monster Twitter Cards in the second quarter and launched the product for the entire sales force in the U.S. in July. The next couple of quarters will reflect the impact of this new marketing strategy. Earlier this year, Monster acquired TalentBin and has successfully integrated it. It has started selling access to over 120 million aggregated candidate profiles. ^[1] Going forward, Monster plans to increase the flexibility of its pricing options, and add duration and pay-per-click options to cater to the needs of customers who want variable pricing for job listings.

Monster’s sales in Europe and Asia have declined in the past due to adverse macroeconomic conditions and growing competition from new recruiting platforms such as LinkedIn. Additionally, local competitors have strengthened their position over time and have made it difficult for Monster to sustain its market dominance. The region has faced challenging economic environment in the last couple of years, and may take a while to stabilize. However, Monster is strategically investing in key markets of Germany, U.K., France and Sweden. Earlier this year, GE’s CEO mentioned that Europe’s economy has stabilized although its expansion remains slow. ^[3] The spur in economic activity will help Monster expand its recruitment business, but it needs to ensure that its new products and services are competitive and can withstand LinkedIn’s value proposition.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

1. Monster’s Q2 2014 Earnings Transcript [↩] [↩] [↩]
2. Monster Worldwide Reveals Strategy to Drive Growth and Enhanced Value for Customers, Job Seekers and Shareholder, Monster Press Release, May 14 2014 [↩]
3. GE CEO sees signs U.S. economy improving, says Europe stabilized, Reuters, Mar 10 2014 [↩]