Here’s Why We Have Changed Monster Worldwide’s Price Estimate To $6.41

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Monster Worldwide

Monster Worldwide (NASDAQ:MWW) posted revenue of $184 million during the first quarter of 2015, which represented a 7% year-over-year decline. The revenue came in below our expectations due to currency headwinds  and challenges in the government and the Internet Advertising & Fees businesses. On the other hand, the company’s adjusted EBITDA margin rose by 80 basis points sequentially to 14.7% in Q1.

On the basis of these earning results, we have reduced our price estimate for the company from $6.80 to $6.41. This is as we have lowered the company’s top-line outlook for 2015, even while we have kept the profitability estimates largely unchanged. We believe Monster could continue to see headwinds in the near-term owing to appreciation of the U.S. dollar and weak demand in the European market. However, the company could return to growth over the long-run as its growth strategies are showing progress. This will result in incremental demand for both traditional as well as new product offerings in the coming years, in our view.

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See our complete analysis for Monster

Top-Line Outlook Has Been Lowered For 2015

We have reduced our estimate for Monster’s revenue in 2015 from $782 million (in our previous model) to $756 million based on the results seen in Q1 2015. During the quarter, revenues from the Careers–North America segment decreased by 4% annually owing to challenges in the government and the legacy Internet Advertising & Fees (IAF) businesses. Recently, the company changed its reporting structure to include IAF revenues in the Careers-North America segment. Additionally, the revenue in the Careers-International segment decreased by 13% year over year in Q1 2015 owing to currency headwinds and macroeconomic challenges in Europe.

We expect revenues in the Careers-North America business to return to sequential growth later this year on the back of growing demand in the core business, where bookings grew by 6% annually in Q1. However, Monster’s international business could see revenue decline during 2015 owing to headwinds such as dollar appreciation and reduced demand in Europe. This will partially be offset by growth in the Asia Pacific region.

Profitability Outlook Has Been Maintained

Even while we have lowered our top-line outlook, our estimates for Monster’s profitability remains largely unchanged as the company is expected to complete its cost savings program earlier than expected. Of the planned workforce reduction of 300 positions globally under the ‘Reallocate to Accelerate’ program, approximately 200 positions were impacted at the end of March 2015. Once completed, the initiative is expected to raise the company’s EBITDA margin to 18%-22% by the fourth quarter of 2015.

Traction Against Growth Strategies Continues To Drive Long-Term Outlook

Monster has drastically raised the number of job listings on its platform from just 250,000 in early 2014 to more than 4 million presently. The company has followed this initiative with a digital brand campaign aimed at millennial population. Coupled with search engine optimization and improvement in mobile experience, this has led to strong growth in the company’s traffic and deeper engagement metrics.

Additionally, the growing popularity of ‘Twitter Cards’ and ‘Monster social ads’ products is contributing to increasing demand for job advertising products. Talent Bin and Talent CRM are other new products that are being developed by Monster to enhance its value proposition. We believe the company will continue to expand the reach of these products across international geographies in the future, and this will result in incremental demand, in our view.

Our $6.41 price estimate for Monster’s stock, is marginally above the current market price.

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