From American Technology Research analyst Mark Mahaney's note to clients evaluating Monster Worldwide's (ticker: MNST) earnings:
MNST posted an In-Line & In-Line quarter -- $247MM in revenue and $0.17 EPS was in-line with the Street, and so was the updated and more detailed guidance. Fundamentals improved. Y/Y organic revenue growth accelerated for the key Monster division from 28% in December to 34% in March. And overall EBITDA margins rose 230 bps Y/Y to 18%, with 25% incremental margins.
Our estimates increase modestly – 2005 EBITDA goes from $214MM to $217MM and GAAP EPS goes from $0.87 to $0.90. At the margin, we are more positive because: 1) Our estimates are going up; 2) fundamentals are improving, and MNST's guidance implies a continuation of that trend; 3) MNST appears 1-step closer to selling its way-underperforming Directional Marketing division; and 4) FCF conversion is really ramping nicely for MNST, buttressing the valuation argument.
We had thought that, below $25, a Long trade into numbers was a good risk/reward way of making money, however the shares are down 4% post-earnings. But we'll stick with our core Buy recommendation. Our overall investment thesis remains: 1) A secular shift of help wanted ads online; 2) A leading position in the online help wanted segment; 3) Clearly improving fundamentals; and 4) Reasonable valuation – 14X 2005 EBITDA, 20X FCF, and 28X GAAP EPS, with EBITDA and EPS each growing 40%+. Our Price Target remains $34.
Major risks are international expansion and roll-up risks. We don't have a near-term catalyst, and we don't expect Street estimates to change materially. So the stock may well ride the bottom for a while.
