Here’s Why We Have Reduced Our Valuation For Monster Worldwide

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MWW: Monster Worldwide logo
MWW
Monster Worldwide

We have undertaken a significant update on our valuation for Monster’s (NASDAQ:MWW) stock – its price estimate has been decreased by more than 20% from $6.90 to $5.59. This change reflects ongoing challenges in the company’s business model due to heightened competition and weakness in the international region. The company has strategies intended to counter these challenges, including expanding the number of job listings and candidate profiles, leveraging social media, and adding more flexibility to pricing plans. And while we believe these can reinvigorate growth to an extent, our short-term outlook on the company’s bottom-line is pessimistic. Over the long-run, we expect the margins to rise back to stable levels on the back of cost-cutting initiatives and growth in revenue.

Our $5.59 price estimate for Monster’s stock, represents around 30% premium to the current market price.

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See our complete analysis for Monster


Margins Are Declining, While The Company Is Struggling For Growth

We have revised down our estimates for Monster’s EBITDA margins for all its business segments, namely: Careers North America, Careers International, and Internet Advertising & Fees. While previously we had estimated EBITDA margin in Career International and Internet Advertising & Fees segments at 5.9% and 35.4% in 2014, we have now revised down these estimates to 1.1% and 29.9% respectively. Huge pricing pressure owing to intense competition has had an impact on these margins. Apart from that, the company continues to face macroeconomic challenges in various parts of Europe and Asia and this has caused downside in its international business. However, over the long-run, we expect the margins to increase from the low levels seen in 2014 as the company’s strategies begin to impact growth. We also expect Monster to engage in cost-cutting and restructuring initiatives to improve its profitability.

We currently expect EBITDA margins to rise from 11% in 2014 to over 18% by the end of our forecast period (2021). In the event, this margin increases to only 15%, it would represent more than 25% downside to our price estimate. Hence, we believe profitability could be a key driver for Monster’s stock price movement in the future and investors should be concerned if the company continues to show slippages in this metric.

While Short-Term Revenue Outlook Is Grim, We Expect Slow Growth In The Long-Run

Monster’s revenue has fallen by 4% year-over-year during the nine months ended 2014 due to significant decline in the European business, pricing pressure, and transition of sales force to prepare them for newer products and services. However, Monster has taken several initiatives to stem this decline. It has dramatically raised the number of job listings on its platform. While only 250,000 job listings were posted on the platform at the beginning of 2014, this figure is expected to reach 7-8 million by the middle of 2015. Once this feature is released widely, we expect to see additional traffic and engagement on the platform.

Monster is also taking steps to make its network more social – the launch of ‘Monster Twitter Cards’ and the integration of TalentBin expands its reach across the entire social web and also allows recruiters to reach out to the more coveted passive job seekers. The company has also introduced a new cloud-based candidate relationship management tool and made its pricing options more flexible. The re-alignment of the sales force to prepare them for new strategy is now complete, and hence we think these initiatives could boost growth from 2015 onwards. We also expect Monster to see sequential growth in revenue in the fourth quarter of 2014.

We currently estimate Monster’s revenue to grow from $776 million to around $900 million by 2021. In case the revenue grows much faster to $1100 million by 2021, then it would lead to over 20% increase in our price estimate. However, if the revenue stays around the present levels till the end of our forecast horizon, then it would represent around 10% decrease in our price estimate. We encourage our readers to tweak our estimates to see their impact on valuation.

Change In Discount Rate

While earlier we had pegged Monster’s discount rate at 12%, we have now raised this estimate to 14.5% owing to higher risks in the company’s business model. The company’s beta (which indicates exposure to market risk) has been measured at around 2.3, raising our estimate for the discount rate. This change also had a major impact on our valuation for Monster’s stock.

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