More than 10% of Monster’s (NYSE:MWW) revenues in North America come through federal government deals making it an important channel for Monster.  However, in the last quarter, this segment showed only 5% growth – much lower than the overall North America business growth of 29%.  The company is confident that it can win transaction deals from government in the near term, which will help drive growth and fend off niche players like careerbuilder.com and jobcentral.com and growing competition from social networks like LinkedIn (NYSE:LNKD), Facebook and Craigslist.
We currently maintain $14 price estimate for Monster stock, which is about 5% below market price
Monster has seen a drastic decline in the number of new job postings on its site in North America. This number declined from around 1.9 million in 2007 to 1.1 million in 2010 as shown in the above chart. Recession, of course, was the natural culprit for such a large decline in activity as companies scaled back on their recruiting efforts and cut out redundancies.
Uncertainty around government deals
During the earnings conference call, Monster highlighted that there was some uncertainty on the timing of government deals but pointed out that it expects these to come through later this year.
While the federal government solidified its 2011 budget, we are still facing near-term uncertainties around the timing of some large deals closing in the pipeline. 
..What we’re forecasting for Q2 is we have a very significant pipeline in the Government business right now. So from a forecast perspective, there could be some large deals that could close in Q2, Q3. 
- How Much Did Monster’s Revenue & EBITDA Grow In The Last Five Years?
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Gauging the risk facing Monster
As shown in the above chart, we believe that Monster will be able to turn around its job posting declines in the near to medium-term. Monster will certainly need help from federal government if it wants to achieve this.
However, if the government delays further and if employment fails to pick up, we could see downside to our estimates. To gauge the downside impact of this risk on our estimate for Monster stock, you can drag the above trend-line.Notes:
- Monster Q1 2011 earnings conference call Q&A transcript, SeekingAlpha, April 30th 2011 [↩] [↩]
- Monster Q1 2011 earnings conference call transcript, SeekingAlpha, April 30th 2011 [↩] [↩]