Monster’s Stock Tanks On Below Par Q4 Results, Guidance

Monster Worldwide’s (NASDAQ:MWW) below-par fourth quarter results and its disappointing guidance for the first quarter this year resulted in the company’s stock nosediving following its earnings release on Thursday. Monster’s overall revenue declined 9% year-over-year (y-o-y) to $159 million and missed market expectations of $166 million owing to subdued demand in North America, where sales dropped by 8%. In terms of the bottom line, the company reported earnings of $0.12 per share, which was in line with market expectations. For Q1 2016, Monster expects earnings of $0.06-$0.10 per share, which is below analyst consensus estimates of $0.13.

While the European business and new products continued to show promising results during the fourth quarter, increased demand in these two areas alone will not be sufficient to accelerate growth for the company. Accordingly, Monster is likely to face continued headwinds in expanding its top line in the near future.

Monster lost over a third of its value following the earnings release, and its stock is now trading at around $2.70. We are in the process of revising our price estimate for Monster’s stock.

See our complete analysis for Monster

North America Continues Weak Run

Demand within North America had unexpectedly declined during the third quarter last year after witnessing several quarters of bookings growth in the region. As a result, revenue from the Careers-North America segment declined by 4% y-o-y in Q3 2015. This recurred in the fourth quarter, as sales declined 8% to $112 million due to lower demand from clients in the SMB (small-to-medium business) and mid-market segments, partially offset by slight improvement in bookings and continued growth in the staffing and healthcare channels.

Since the segment contributes over 60% of Monster’s business, these weak results also weighed on the company’s overall growth. While lower hiring activity within small businesses was one of the reasons, increased competition also weighed on Monster during the fourth quarter.

European Growth Accelerated

Continuing with the momentum from the third quarter, the European region reported a strong performance in Q4 2015. In constant currency terms, revenue from the region was up 2% sequentially and flat y-o-y. While this indicates chances of a strong recovery in the European region, we will have to wait for a few more quarters to see if these recent results indicate a new trend. Owing to macroeconomic and competitive headwinds, we believe Monster’s results could again slip in the region in the coming quarters.

Shifting Focus From Margins To Revenue Growth 

Monster’s management stated that it is shifting its strategy from cutting costs and expanding margins to improving its top line, which it termed as relatively more valuable to shareholders than the former. The company had guided towards 5% revenue growth for 2016 last year and a substantially lower EBITDA margin of 25% by Q4 2016. However, owing to a weak market environment and demand uncertainty, Monster again revised its guidance to low to mid single-digit revenue growth for the year. In terms of bottom line, the company stated that it aims to improve its cash EBITDA (operating income, excluding depreciation, amortization and stock-based compensation) in the near term.

Update On New Products

Monster’s strategies for business expansion include: 1) dramatically scaling job listings on its platform; 2) making its products more social; 3) adding candidate profiles from the entire social web; and 4) improving member experience. Although the new products are showing strong uptake and growth, these are unlikely to turn things around for the company considering revenue from new products only accounts for 7% of the overall revenue presently.

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

More Trefis Research