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Monster Worldwide: Don't be afraid
Investors are scared of uncertainty in the labor market and more competition. They shouldn't be.
October 6, 2005: 3:24 PM EDT
By Paul R. La Monica, CNN/Money senior writer

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Labor issues: Shares of Monster Worldwide have been stuck in a narrow range this year despite strong earnings and a healthy job market.
Labor issues: Shares of Monster Worldwide have been stuck in a narrow range this year despite strong earnings and a healthy job market.
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NEW YORK (CNN/Money) There hasn't been much of a roar from Monster Worldwide lately.

Shares of the online job-recruitment company have barely budged during the past three months despite strong second-quarter results, rising earnings estimates and a relatively healthy labor market.

Sure, the September jobs report, due out on Friday, is likely to be a doozy, with economists expecting a 150,000 decline in payrolls. But many economists are writing off this report as an aberration due to Hurricane Katrina.

So is now a good time for investors to put their fears about a soft job market aside and confront this Monster?

Steve Weinstein, an analyst with Pacific Crest Securities, said that investors have a legitimate reason to wonder about how strong job growth will be for the next few months. But he doesn't think that Monster (Research) is in danger of missing upcoming earnings targets because of Katrina.

Monster's own employment index for September, released on Thursday, showed just a slight decline in online job postings from August. And the company said that demand in several key industries, including construction, retail, and public administration, saw an increase in recruiting activity.

A competitive market? Really?

Another reason the stock may be stuck in neutral is renewed fears about competition.

One of the biggest knocks on Monster has always been that it is squaring up against larger rivals. HotJobs is owned by search engine behemoth Yahoo! (Research) And CareerBuilder.com is owned by a troika of big newspaper publishers -- Tribune (Research), Gannett (Research) and Knight-Ridder (Research).

What's more, CareerBuilder.com has consistently ranked first in Web traffic for online job sites this year, according to data from Nielsen//NetRatings. Last year, the lead flipped back and forth between Monster and CareerBuilder.com.

But these concerns aren't exactly new.

"Competition is a fact of life. CareerBuilder.com has been an aggressive competitor for a few years. They may have taken some market share lately but there has been no massive gain that changes my outlook for Monster," said Weinstein.

And so far, the market seems big enough for three major players and several smaller ones, as more and more job listings move from the classified pages of newspapers to online sites.

To that end Banc of America Securities analyst John Janedis, who initiated coverage of Monster Worldwide on Wednesday, wrote in a report that he estimates online job-posting revenue growth will increase at about a 15 percent clip a year for the next five years compared to a growth rate of just 4 percent for help-wanted print ads.

Janedis added that investors shouldn't underestimate the power of Monster's strong reputation either. "While competitive battles will likely be a constant moving forward, we believe that the Monster brand is well established within the online recruitment marketplace and will help the company thrive," he wrote in the report.

Investors may be more concerned about new threats, however. Yahoo! now has a free job-search engine on HotJobs. And there has been increased chatter lately about Google (Research) possibly making an entry into market with a free service that would be supported by advertising.

If these services are a success, it could cut into Monster's revenue since Monster depends on fees paid by people looking for work as well as employers listing jobs on the Monster.com site.

"Whenever you have someone doing what you do and doing it for free, that could put substantial pressure on your business," Weinstein said.

Still, these concerns appear to be already priced into Monster's stock.

Shares trade at 25 times 2006 earnings estimates and in a recent research report, Robert W. Baird analyst Mark Marcon wrote that this multiple seemed "reasonable" given the potential for earnings growth in excess of 20 percent for the next few years.

Sunil Reddy, senior portfolio manager with Fifth Third Asset Management, which owns the stock in the Fifth Third Technology fund, said he's added to his position in Monster during the past three months to take advantage of the stock's weakness. He said that Monster's increased presence in international markets is also a plus.

So go ahead. There's no reason to be afraid of this Monster.


Don't be spooked by the September jobs report. Click here to find out why.

For a look at more Internet stocks, click here.

Baird's Marcon or a member of his family owns shares of Monster but his firm has no banking ties with the company. Banc of America's Janedis does not own the stock but his firm has done banking for Monster. Weinstein does not own the stock and his firm has not done investment banking for the company.

Time Warner, the parent company of CNN/Money, has a business relationship with CareerBuilder.com

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