Monster Worldwide Q1 Earnings Miss by a Penny - Analyst Blog

Monster Worldwide Inc. MWW reported earnings of 2 cents per share (including stock based compensation but excluding one-time items) in the first quarter of 2014, which missed the Zacks Consensus Estimate by a penny, primarily due to a year-over-year decline in revenues.

Revenues

Revenues remained flat sequentially but declined 6.5% year over year to $198.2 million in the first quarter. Revenues missed the Zacks Consensus Estimate as well. On a year-over-year basis, results were impacted by declines in revenues at Monster Careers (down 5.9% year over year to $182.3 million) and Internet Advertising & Fees (down 13.2% year over year to $15.9 million).

Revenues in the International Careers segment were $70.6 million, up 1% sequentially but down 9% year over year. Revenues in the Careers North America segment were $111.6 million, up 1.0% sequentially but down 4.0% on a year-over-year basis.

Careers Total segment revenue was $182.3 million, up 1.0% sequentially but down 6.0% from the year-ago quarter while IAF segment revenue was $5.9 million in the reported quarter, down 12.0% sequentially and 13.0% on a year-over-year basis.

From a geographical perspective, revenues from Europe were up 2% sequentially but down 9% year over year. APAC revenues were down 1% on a sequential basis and 11% year over year, primarily due to a tough macroeconomic environment in India. Korea continues to hold its own in a macroeconomic environment that has shown slight improvement.

Monster Worldwide's global membership is now over 210 million and it continues to add a member every two seconds. Mobile accounted for 31.0% of the total traffic in the reported quarter.

Engagement on the market-leading résumé search platform was up significantly. Overall users on the platform were up 27.0% over last year and the time each user spends on the site was up 43.0% on a year-over-year basis.

Margins

Operating expenses declined 2.2% from the year-ago quarter to $192.3 million. While salaries & related increased (up 4.5% year over year), the other components of operating expenses decreased. Office & general expenses (down 1.8% year over year) and marketing and promotion expenses (down 15.9% year over year) lowered overall operating expenses.    

Monster reported non-GAAP operating income of $5.9 million, which was down 61.8% from the year-ago quarter. Operating margin contracted 430 basis points (bps) to 3.0% from 7.3% in the year-ago quarter due to lower revenue base.

Non-GAAP net income from continuing operations (including stock based compensation but excluding all one-time items) decreased 84.1% from the year-ago quarter to $2.1 million.

Balance Sheet & Cash Flow

Monster had $18.9 million in cash from operating activities in comparison to cash outflow of $8.6 million in the prior quarter. Free cash flow was $8.2 million. Deferred revenue was $341.9 million, which remained flat sequentially.

Monster Worldwide repurchased 5.0 million shares of common stock in the reported quarter. The company has repurchased approximately 25.0% of outstanding shares over the last nine months.

Acquisitions

In the quarter, Monster Worldwide spent a sum of $27.0 million for the acquisitions of social recruiting technology players, TalentBin and Gozaik.

Gozaik will enhance Monster's ability to successfully connect people and job opportunities by adding increased distribution of job ads across social channels. On the other hand, TalentBin provides additional employer resources for finding the best active and passive candidate across social websites.

Also, Monster Worldwide's continued venture with Alma Media demonstrated promising results and, more importantly, turned a loss into a gain for the Eastern and Central European region. Monster Worldwide currently has an equity ownership of 15.0% in this profitable business, with the option of increasing the ownership to 20.0% in the future.

Strategy Briefing Day

Monster Worldwide will hold a Strategy Briefing on May 14, 2014 at Monster's Corporate Headquarters in Weston, MA, where members of Monster's executive and senior management team will present the company's strategic growth plan and new product initiatives, including a general update on the business.

Guidance

Monster expects second quarter earnings to range from 7 cents to 11 cents per share. The Zacks Consensus Estimate is pegged at 9 cents per share, which coincides with the midpoint of management's guidance.

Going forward, management expects capex to be in the range of $7 million to $9 million per quarter. Also, the company expects to generate operating cash flow between $15.0 million and $25.0 million on a quarterly basis going forward.

Our take

The partnership with H&Q is believed to aid the company in extending its footprint in South Korea. Additionally, Monster's core business is showing signs of improvement and exhibiting robust potential for cash flow generation. Additionally, the company's corporate restructuring initiative is expected to boost margins, going forward.

Mobile has been the primary area of focus for Monster for some time and the fact that the penetration of smartphones is increasing should be considered a major positive going forward.

However, the company continues to face significant competition from professional and social networking websites such as Facebook FB as well as from traditional advertising companies such as Omnicom Group OMC.

Currently, Monster has a Zacks Rank #3 (Hold). Other better ranked stocks in the sector include the likes of Expedia, Inc. EXPE with a Zacks Rank #2 (Buy).