These Scenarios Can Impact Monster Worldwide’s Stock

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Trefis
MWW: Monster Worldwide logo
MWW
Monster Worldwide

Monster (NASDAQ:MWW), a global player in the online recruitment market, posted revenue of $770 million in 2014. While our $6.80 price estimate for Monster’s stock represents a near-10% upside to the market, we believe there are certain probable developments that could move the stock significantly over the coming years, assuming the market prices in these triggers correctly. Specifically, we think the degree of success with recent growth strategies and cost-cutting initiatives could impact the stock price changes for better or worse.

See our complete analysis for Monster

New Product Offerings Gain More-Than-Expected Traction (+10%):

We expect Monster’s business to turn around in the coming future, in line with the recent bookings growth in North America, and due to progress seen against several growth strategies. Monster’s move to expand the number of job listings is gaining ground as job postings recently surpassed 4.5 million, as compared to 250,000 in early 2014. In addition, the company is focusing on social trends by launching ‘Twitter Cards ‘and ‘Monster Social Ads’ (currently in beta stage). These Twitter-based products allow recruiters to reach out to passive candidates on a large-scale. Moreover, Monster continues to enhance its Talent Bin and Talent CRM products and is rolling them across additional markets. Due to these factors, we have estimated Monster’s top-line in Career Services North America segment to rise at 1.9% CAGR over our forecast period.

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In the event revenues in the North American business rise faster at 3.8% CAGR over our review period, it would take our price estimate 10% higher to $7.50. A few factors that increase the likelihood of this scenario include:  1) increased demand for Monster’s products and services due to strong growth in economy; 2) innovation in product offerings that allow Monster to fully leverage ‘social trends’ in hiring; and, 3) expansion in user base and engagement on the platform due to growth strategies.

Cost-Cutting Initiatives Fail To Drive Significant Margin Expansion (-10%):

Monster’s EBITDA margin in the Career Services International segment fell drastically from 27.3% in 2011 to 1.5% in 2014 due to adverse macroeconomic conditions and increased competition from other recruiting platforms such as LinkedIn. In our valuation model, we estimate EBITDA margin in this segment to rise to 22.0% by the end of our forecast period. This is mainly due to the cost-cutting initiatives that were recently announced under the Reallocate to Accelerate strategy. Through this, the company aims to cut around 300 positions globally (representing about 7% of its workforce), consolidate certain facilities, and curb discretionary spending across markets. Though the initiative will cost about $18-$23 million in 2015, it is expected to result in annualized savings of $38 million to $45 million (according to management estimates). A large part of these cost savings will occur in international markets. Additionally, we expect international revenues to grow modestly over our forecast period, leading to operating leverage in the business segment.

However, under a scenario where EBITDA margin in this segment expands to only 15% by 2021, it would represent a 10% decrease in our price estimate to $5.97. A number of factors make this scenario plausible, such as:   1) failure of new products to gain widespread acceptance in international markets due to intense competition; 2) worsening of economic conditions in certain European geographies; and, 3) failure to properly execute on restructuring strategies.

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

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