Monster A Monster Short? Earnings This Week Could Trigger Further Sell-Off

| About: Monster Worldwide, (MWW)

It's a big earnings week in the recruiting industry as both LinkedIn (LNKD) and Monster (MWW) report this Thursday. These are two very volatile stocks, and it appears than we can expect some big moves.

A couple things that I am worried about

  • Concurrent with the closing acquisition of Yahoo (YHOO) HotJobs in 2010, Monster and Yahoo entered into a three year commercial traffic agreement whereby Monster became Yahoo's exclusive provider of career and job content on the Yahoo homepage in the United States and Canada. Has there, or is there going to be an extension of this agreement? Given that over 50% of revenue has been derived from the United States alone over the last three years, this has implications.
  • As of December 21, 2011, goodwill and amortizable intangible assets were $1,184.1 million which represented 58% of total consolidated assets. Given the underperformance of Monster, should we expect a significant charge here? They have made significant acquirements and recorded substantial goodwill, accordingly you can argue, especially given the below from the 2011 annual, that there's significant potential losses here:

"The Company recognizes during certain periods our market capitalization has been below our book value. Accordingly, we monitor changes in our share price between annual impairment tests to ensure that our market capitalization continues to exceed or is not significantly below the carrying value of our net assets. We consider a decline in our market capitalization that corresponds to an overall deterioration in stock market conditions to be less of an indicator of goodwill impairment than a unilateral decline in our market capitalization which would reflect adverse changes in our underlying operating performance, cash flows, financial condition and/or liquidity. In the event that our market capitalization does decline below its book value, we consider the length and severity of the decline and the reason for the decline when assessing whether a potential goodwill impairment exists. We believe that short-term fluctuations in share prices may not necessarily reflect underlying values. However, if a decline in our market capitalization below book value persists for an extended period of time, we would likely consider the decline to be indicative of a decline in the aggregate fair value at the reporting unit level." - p.55

Is an write down in goodwill and/or intangibles to be expected?

  • Their revolving credit facility expires on December 21, 2012. Have they entered into agreements to extend this at equal or similar favourable terms? As of the 2011 annual report the utilized portion of the revolving credit facility (total $300 million) and the entire amount of borrowings on the term loan were due within one year and represents $181.5 million of the total borrowings.
  • Beknown, their attempt to infiltrate Facebook's (FB) roughly billion users, seems to have fizzled out. It will be interesting to hear if management has anything to say about this. Check out the following posted decline in Monthly Average Users (MAUs) posted by John Zappe:

Monthly Average Users (MAUs) for BeKnown
(Click to enlarge)

If we take a look at the chart, the long-term out look doesn't look so good either. It appears that there is a significant head and shoulders pattern that has developed in the weekly charts. And this pattern is following Monster's tremendous fall in price from a high of almost $60 in 2006. Any break down below the $6 level could produce a serious sell-off.

(Click to enlarge)

I would like to disclose that I have just recently started covering Monster and I apologise if I have missed any recent material developments. In the above article I have simply covered some findings that I believe are interesting and warrant further attention. I welcome any feedback or further arguments in support or against my findings.

Disclosure: I am short LNKD, SPY. I may initiate a short position in MWW in the next 72 hours. All financial information related to Monster is sourced from the 2011 annual statement