Improved Outlook Sends Monster Worldwide’s Stock Higher

Monster (NASDAQ:MWW) posted revenue of $186.2 million in the fourth quarter, which represented 3% sequential and 6% annual decline respectively. The revenue came in below our expectations, due to currency headwinds and the unexpected loss of a government contract. Going forward, we expect revenue growth to accelerate, in line with the recent bookings growth. Monster’s strategy of significantly raising the number of job listings and candidate profiles, utilizing social trends, providing pay-for-performance pricing plans, and adding more features across its product lines will boost its business in the future, in our view. In addition, the global launch of new products (including Talent Bin, Talent CRM and Twitter Cards) over the coming months will also boost the company’s outlook in the future.

In terms of earnings, we expect Monster’s plan to curb its operating expenses to help expand its adjusted EBITDA margin beyond the 22% target by Q4 2014. Significantly, we expect this initiative to boost its margins across its international segment, making the overall business more sustainable and efficient for long-term growth.

We are in the process of revising our $5.59 price estimate for Monster’s stock.

See our complete analysis for Monster

Cost Cutting Initiatives Will Raise Margins Through 2015

Monster aims to cut down its costs under a ‘Reallocate to Accelerate’ strategy, wherein it will cut 300 positions (or about 7% of its workforce) globally and control spending across its international geographies. While the program will cost around $18 million to $23 million (mainly in employee severance expenses), it is expected to result in annualized savings of $38 million to $45 million. This strategy is expected to raise the adjusted EBITDA margin to 18-22% by Q4 2015 and to allow for a much stronger 30%-35% EBITDA margin by Q2 2016.

We are encouraged by this development, considering these costs savings could come on top of the  increase in operating leverage that comes with higher revenues and bookings. The international segment has been highly unprofitable for Monster, and proper execution against these planned initiatives could enhance bottom-line results for the company.

Bookings Growth Boosts Future Outlook

Bookings, a key indicator of future performance, rose by 8% annually in Careers-North America segment in Q4. Strong performance across staffing and enterprise businesses led this growth. In Europe, bookings came in flat on a constant currency basis. This was driven by growth across France and Germany as the business slowed down partially in the U.K (its third largest European market). And in Asia, bookings increased by 9% (constant currency), owing to strong growth across Korea and India.

We expect the recent rise in bookings over the past two quarters to bolster Monster’s top-line in the coming future. Essentially, this indicates that the worst could now be over for the company and its traditional and new product offerings are gaining acceptance among customers globally.

Progress Seen Against Growth Strategies

Monster continued to execute against its growth priorities during the fourth quarter, and this contributed to increased traffic and engagement on the platform. The mobile platform now constitutes for a larger pie of the traffic on Monster’s site — it represented for around 40% of traffic and 42% of job views in Q4 2014.

The number of job listings have now crossed 4.5 million, as compared to 250,000 at the beginning of 2014, as the company now leverages the latest social trends in hiring. The ‘Twitter Cards’ product, which allows companies to connect with the more coveted passive candidates, has gained success and its reach has now been extended to five more markets, in addition to the U.S. The company is making its products more social and is presently has another ‘Monster social ads’ product in beta stage testing. These Twitter-based products allow recruiters to propagate their job postings on the social network on a large scale. Besides this, Moster has also ramped up its Talent Bin product with additional features, and has expanded this product across more geographies and job categories.

Encouragingly, Monster’s flagship search product, power resume search and the recently launched Talent CRM, have gained high acceptance among recruiters, leading to higher activity on the platform. We believe Monster will continue to develop these products and will also expand their reach across more markets outside the U.S. and select European geographies; this will propel sales growth in the future, in our view.

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

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