Here’s How Monster Worldwide Performed During 2014
In this article, we assess Monster’s (NASDAQ:MWW) performance through 2014, and describe the key reasons for the near-40% drop in its stock price during the year. We also take a look at its future outlook and how this relates to our $5.60 valuation for the company’s stock. Moreover, we have created an info-graphic that summarizes our findings, so that our readers could grasp this information quickly.
Monster’s business has under-performed during this year, both from a top-line as well as a bottom-line perspective. While its sales fell by 4% year to year during the nine months ended September 2014, its EBITDA margin has also decreased by 350 basis points to 11.7% during the same period. In response, the company has taken various initiatives to re-position its business, including bolstering the number of job listings and candidate profiles, leveraging social media, and providing more flexibility to pricing plans.
We believe the worst could now be behind the company, considering the recent 7% pickup in North American bookings. The re-alignment of the sales team to prepare them for newer the strategy is now complete, and we think this could result in acceleration of its business starting Q4 2014. Over a longer time-frame, we also expect the margins to rise back to more stable levels, on the back of cost-cutting initiatives and an increase in revenue.
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Our $5.59 price estimate for Monster’s stock, represents around 30% premium to the current market price.
See our complete analysis for Monster
Revenue And Profitability Slipped During The Year
We expect Monster’s top-line to fall by 4% to $776 million for the year 2014, due to several factors including significant decline in the international business, heightened competitive pressure, and the transition of its sales force to prepare them for newer products and services. Monster’s slow pace in adapting to the changing competitive environment, which with the entry of LinkedIn is now more focused towards social profiles and platforms, has also had an impact on the company’s business.
The same story has also played out for the company’s profitability. Beset by huge pricing pressure and macroeconomic challenges in Europe and Asia, the company’s operating and EBITDA margins declined year to year by 250 and 350 basis points to 1.3% and 11.7%, respectively, during the nine months ended September 2014. This has caused its GAAP diluted earnings per share (EPS) to decrease to almost nil during this nine month period in 2014, as compared to $0.18 in the same duration a year ago.
Growth Strategies Could Improve Monster’s Competitive Position
Monster has taken several initiatives to re-position its business. It has drastically raised the number of job listings on its platform from just 250,000 at the beginning of 2014 to around 5 million currently. This metric is further estimated to reach 7-8 million by the middle of 2015. We think once this update is rolled out widely, it would result in considerable increase in traffic and engagement on the platform.
The company has also taken measures to make its network more “social” with the introduction of ‘Monster Twitter Cards’ and the integration of TalentBin. Both moves have enhanced Monster’s reach across the entire social web. These features allow recruiters to connect with the more coveted passive job seekers. Moreover, Monster recently launched a new cloud-based candidate relationship management tool and added flexibility to its pricing options. While the re-alignment of the sales force had impacted sales during the past two quarters, this transition is now complete, and hence we think these initiatives could fuel growth starting next year. We expect sequential growth in sales in the fourth quarter of 2014 as well.
Future Outlook Could Improve
Taking into account the above growth initiatives, we estimate the company’s revenue to conservatively rise from $776 million to around $900 million by 2021. In the event sales grows much faster to $1,100 million by the end of our forecast period, then it would result in over 20% increase in our price estimate. However, in a scenario wherein Monster continues to cede ground to its rivals, and its sales remains around the present levels till the end of our forecast horizon, then it would lead to near-10% drop in our price estimate. We invite the reader to test their own assumptions with our dynamic model.
On the same note, we also think the company’s profitability could improve going forward, considering: 1) an acceleration in sales growth due to some degree of success in its growth strategies, which will result in operating leverage; and, 2) cost-cutting and restructuring initiatives. Hence, we have forecast its EBITDA margin to increase from 11% this year to over 18% by the end of our forecast period (2021). However, we’d advise investors to closely track the company’s profitability levels, as a mere 3% decrease in our margin estimate to 15%, would result in approximately 25% fall in our price estimate.
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