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Monster Worldwide (MWW) Q1 Earnings Top, Outlook Tepid

Zacks Equity Research
Updated

Shares of Monster Worldwide Inc. MWW fell almost 10% yesterday after the company reported its first-quarter 2016 results. Though adjusted earnings (including stock-based compensation but excluding one-time items) of 5 cents per share beat the Zacks Consensus Estimate of 4 cents, revenues disappointed.

Revenues of $157.8 million not only missed the Zacks Consensus Estimate of $158.1 million but declined 14.1% year over year. Adding to it, the company’s tepid outlook for the second quarter and full year sent investors into a tizzy resulting in a big sell-off.

Quarter Details                                                

Quarterly revenues from Careers – North America were $109.2 million, down 11% year over year. Revenues from the Careers – International segment were $48.6 million, unchanged on a year-over-year basis.

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On a non GAAP basis, operating expenses of $146.4 million declined nearly 8.7% year over year.

The company reported adjusted EBITDA from continuing operations of $21.5 million compared with $24 million reported in the year-ago quarter. Cash EBITDA (i.e., operating income excluding depreciation, amortization, non-cash impairment and stock-based compensation) was $19.5 million, more than doubling from $8.1 million reported in the prior year quarter.

Monster exited the quarter with $131.7 million in cash and cash equivalents, compared with $167.9 million as on Dec 31, 2015. Cash used for operating activities was $8.6 million and free cash flow was negative $18.7 million. Deferred revenues from continuing operations were $270.9 million, down 3.2% from $279.8 million as of Dec 31, 2015.

The company repurchased 1.1 million shares in the quarter for approximately $3 million. In the quarter, the company also used the repurchases fund to buy back the company's 3.5% convertible notes due in 2019 worth $10.0 million. 

Outlook

For second quarter 2016, the company expects non-GAAP earnings per share from continuing operations in the range of breakeven to 4 cents, excluding $2 million to $3 million of stock-based compensation and $1.3 million of non-cash debt discount amortization pertaining to the convertible debt. The Zacks Consensus Estimate is currently pegged at 4 cents a share.

Adjusted EBITDA is expected to be in the range of $15 million to $20 million while cash EBITDA (i.e., operating income excluding depreciation, amortization, non-cash impairment and stock-based compensation) is likely to be in a range of $13 million to $18 million.

For 2016, Cash EBITDA is expected to be in a range of $85 million to $100 million and revenue growth is expected to be in the low-to-mid single digits (at constant rates in the fourth quarter of 2016).  Management said that the target is getting increasingly difficult on account of North American bookings falling short of expectations in the first and second quarters and intensifying competition.

Our Take

Monster Worldwide has been seeing weakness in its transactions business in key regions like North America and Canada. We expect that going ahead, with the macroeconomic outlook remaining unclear, employers might continue to remain conservative with their hiring budget. Further, competition has intensified over the last few years in the online employment market. Many recruiters are already using alternative social media sites such as LinkedIn LNKD. Though Monster is now working to build its social media presence, the headwinds will likely remain in the near term.

Nonetheless, there can be some respite because of the re-branding and cost-cutting initiatives that are expected to boost its growth over the long term.

Monster currently has a Zacks Rank #3 (Hold). Some better-ranked tech stocks in the same space inclde Fcaebook Inc FB nad 21Vianet Group, Inc. VNET. While Facebook sports Zacks Rank #1 (Strong Buy), 21Vianet Group carries Zacks Rank #2 (Buy).

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