Why I'm Leery of Monster

Yesterday on TickerHound.com, a member asked: "What do you think about Monster.com?".

I haven't thought about this company for a long time. But once I started to really take stock of our current economic climate and Monster's business model, I began to see why I needed to tell all my friends to doublecheck their portfolios and make sure they weren't holding onto any shares of this one.

Monster Worldwide (MNST) is one of the world's largest online job databases. The company is one of the few successful holdouts of the dot-com era, and performed rather well after the market began to make a comeback in 2003.

The stock went from a low of $8.57 per share in March of 2003 to a high of $57.40 in April of 2006 - that's a 569% return in under 3 years. Not bad, not bad at all.

But to keep all this in perspective, the stock was at $91 a share in March of 2000. So over the course of 6 years, the stock was actually down about 37%. Reason being the recession of 2001 and the subsequent multi-year bear market that followed.

Monster, being so tightly correlated to the job market, got hit so hard because as unemployment went up and companies stopped hiring, their site provided very little value to employers and employees alike.

So now we're at the beginning of 2008, it's pretty obvious we're heading into a recession (no one knows how bad this could get), and I feel like I've seen this movie before.

Many people would tend to agree - Monster's already down about 30% since the beginning of 2008.

Some may call that oversold, I call it "the tip of the iceberg."

If we were simply talking about an equities market "correction," then I'd say we'll be coming out of the downturn by the 3rd quarter. But we're talking about a crisis in the credit markets here - we haven't had to deal with this since the '70s and when you stack inflation on top of it we're looking at a "perfect storm" scenario.

So this isn't even a matter of performing deep financial analysis or picking apart the chart to identify a pattern. Let's use some common sense (an underused asset in many investors' toolboxes) here and see if we can figure out what's going to happen to Monster…I think asking ourselves a few questions will be a good way to proceed:

• Do you think companies are going to be hiring aggressively or laying people off?
• Do you think they're going to want to pay to list their jobs or will they simply use word of mouth to attract the relatively small number of employees they might hire?
• Is it a good sign or a bad sign when 3 - 4 top executives leave the company over the last 3 months?

I feel like I'm watching a rerun of 2001 here and Monster's on its way to $10 per share!

Now, I've never been one to go short a stock…it's just not something I'm comfortable doing.

But you should definitely have a look at your portfolio, because if you have "a Monster" lurking in there, it'd be a smart move to get rid of it and get rid of it quick!

Disclosure: Author has no position MNST.

Comments

[CevicheFundPartners LP]

Agree with everything that still think the new mgmt came in to sell the company...

[KSJ]

I am not sure how this analyst has this doomsday prediction about Monster. Did he even open the balance sheet of Monster ever and see the cash flows? How many internet companies can boast of the international presence and profitability as Monster does? May be for the author, the whole world is only US. A company with almost 50% of its revenues from EU and APAC, no. 1 in EU, India and China in its space, healthy balance sheet is a good long term bet to invest and not divest. Your kind of pessimist and pseudo analyst are the ones who are giving fuel to the fire to the speculation of US slowdown impacting everything else in the world.

[andrewh10]

I disagree with his analysis and believe most of the pain is priced into the equity. His timing for writing this piece is uncanny and he is most likely a net short. MNST's balance sheet is rock solid and their cash flows are strong. Even though the employment industry has been in a correction (or recession whatever you call it) for over the last 8 months they still have decent pricing power because they are the biggest player out there. MSFT is making strong ways into this arena with increased ownership in CareerBuilder and HotJobs, which bodes well for the long term horizon. We need not speculate when GOOG will need to have its finger in one of the pies. The buyout potential is real and could be getting very ripe. The market cap has shrunk to a little less than 3B and they have had some internal problems. However, the shorts have been able to manipulate the story here. MNST has increased its exposure to important international areas of growth namely China and India. Only time will tell but I doubt you have much downside left here and MNST will be around just like RHI and MAN. Could it go to 15 perhaps but it sure as heck would not stay there for long based on the cash flows. I suspect the stock actually heads up to 25-30 in the near term.

[Henry V]

In 2000 Monster US had 10x CareerBuilder US revenue, now CareerBuilder is level and reportedly deploys better technology. They continue to kill each other on prices for Fortune 2000 market. Selling resumes & job postings is still lion share of revenue, but both have become free www commodities. In a way Monster is now where newspapers were in 1998: standing stil land underestimating impact of new players suc has talent management platforms for employers and social network platforms for job seekers. Their stock will go down as much as it did during last recession, question is if it will rise again like last time...

[Shawnette]

Disagree with the analyst. Why single out Monster? Most stocks are showing the same pattern.

[andrewh10]

Looks like I was right...again but no need to pat myself on the shoulder right? I do not believe its a screaming buy here though.

[WayneMulligan]

The picture could certainly continue to improve for Monster and the economy at large...but I'm going to stick to my original thesis for a bit longer. I don't think we've seen the real employment picture take shape yet, and once we do, that's when this stock will take a beating. But we shall see.

[AmesTiedeman]

With job contraction won't they lose revenue from corporations? But they will gain from job seekers.