Monster's 4Q EPS In Line, Revs Miss
Monster Worldwide (MWW) reported earnings of 8 cents in the fourth quarter of 2012, which was in line with the Zacks Consensus Estimate. However, earnings per share (“EPS”) declined 55.6% year over year and 11.11% sequentially, primarily due to lower revenues and operating margin growth.
Revenues
Revenues declined 10.0% year over year and 4.7% sequentially to $211.2 million in the fourth quarter. This was well short of the Zacks Consensus Estimate of $216.0 million. Currency translation had a negative impact of $1.3 million on revenues.
Bookings decreased 13.0% year over year but increased 23.0% sequentially to $261.0 million that includes a negative impact of $0.8 million from currency translation. The year-over-year decline in bookings was primarily due to weak performance from North America careers, which declined 5.0% year over year, while Bookings in Europe declined 30.0% in the reported quarter.
In North America, government bookings plunged 19.0% and field and telesales bookings decreased 6.0%, which fully offset a 7% increase in Newspaper and a 5.0% jump in both e-commerce and staffing.
The sequential growth in bookings was primarily driven by a 26% increase in North America and a 30% jump in Europe.
Segment wise, Careers North America (52.8% of the total revenue) revenues declined 6.0% year over year and 3.4% quarter over quarter to $111.5 million. Careers-International (38.4% of the total revenue) revenues decreased 14.5% year over year and 7.2% sequentially to $81.1 million. Internet Advertising & Fees (8.8% of the total revenue) revenues of $18.6 million declined 12.9% year over year and 1.2% from the previous quarter.
Margins
Operating margin declined significantly to 7.2% from 12.8% in the year-ago quarter. Operating margin declined 20 basis points (“bps”) on a sequential basis.
Segment wise, Careers North America margin declined 470 bps on a year over year basis and 210 bps on a sequential basis. Careers-International margin declined to 4.1% from 19.9% in the year-ago quarter and 5.4% in the previous quarter. Internet Advertising & Fees jumped to 27.5% from 18.2% in the year-ago quarter and 26.6% in the previous quarter.
The weak result was primarily due to sharp rise in operating expenses, which as a percentage of revenues jumped 560 bps from the year-ago quarter and 20 bps sequentially. The sharp rise in operating expense was primarily due to higher office and general as well as marketing and promotion expenses in the quarter.
Net margin was 4.1% compared with 9.5% in the year-ago quarter and 7.4% in the previous quarter.
Balance Sheet & Cash Flow
Monster ended the quarter with cash and equivalents of $148.2 million, down from $175.1 million at the end of the previous quarter. Monster generated $17.0 million in cash from operations, up from $7.7 million in the previous quarter.
Corporate Restructuring Initiatives
As announced earlier (concurrent with its third quarter earnings release), Monster completed the sale of the ChinaHR business to Saongroup and retained 10% minority stake in the combined China entity. Monster also exited operations in Brazil and Turkey.
Through the restructuring initiative Monster aims to continue and accelerate the redeployment of expenses into marketing and sales in Monster’s core markets (North America, Europe, Korea and India), while reducing the run rate of operating expenses. On a consolidated basis, these initiatives are expected to reduce operating expense by approximately $130 million on an annualized basis.
Assuming flattish revenue growth, these initiatives will generate operating income of approximately $80.0 to $90.0 million.
Monster had earlier announced that it is exploring strategic alternatives with respect to maximizing shareholder value, and retained Stone Key Partners LLC and BofA Merrill Lynch as financial advisors in connection with this review. In its fourth quarter call, Monster reiterated its stance and noted that the process will take some time to complete.
Guidance
Due to the uncertain macroeconomic environment and the restructuring actions undertaken by the company, Monster did not provide any guidance for bookings and revenues. Nevertheless, the company provided earnings guidance in the range of 6 cents to 10 cents per share for the first quarter of 2013.
Our Recommendation
Monster’s results continued to get hurt by reluctant recruiters due to the sluggish macro-economic environment. Monster continues to face significant competition from social and professional networking websites such as LinkedIn Corp. (LNKD) and Facebook (FB) as well as from traditional advertising companies such as Omnicom Group (OMC). Increasing competition is expected to hurt profitability going forward.
However, the corporate restructuring initiative is expected to boost margins going forward. The increasing macro-economic visibility after the resolution of the fiscal cliff and recent debt-agreement will boost top-line going forward.
Currently, Monster has a Zacks Rank #3 (Hold).
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