Thursday, February 01, 2007

Monster Margins Need a Look

Monster Worldwide Inc (NASDAQ:MNST) reported Q4 earnings which were improving. The press release headline announced that International Revenues grew by 63%. They pointed to International Revenues as the main contributor to driving consolidated revenue upward by 33%. Sounds good. International earnings have a certain cachet. Investors probably do not know the employment environment in multiple foreign countries so the tricky questions will be at a minimum.

Continue reading the press release to the end with particular attention to unaudited operating segment information. Monster has been blowing their brains out in the international sector. The operating margins are miniscule when compared to North America. It must be noted that margins seem to have improved in Q4 so the holes in the brain are getting smaller. The press release makes no real mention of the international margin problem.

Fortunately the cash and marketable securities position has improved dramatically; approximately a double. Accounts receivable seem to have increased by 72%. With consolidated revenues up only 33% someone is slow in paying the bills. In the meantime Monster seems to be focused on developing alliances with North American newspapers so as to drive more employment ads.

The stock option scandals have been side stepped by the CFO Lanny Baker. The claim is they do not know what the regulators and courts will do so the will not attempt to forecast. Surely the independent auditors who truly represent shareholder interests will insist on some provision being made because this will cost something significant. Prudence is usually a financial virtue.

Look for this company to start paying a dividend as they try to buy shareholder support. There are now seven independent board members. They clearly have a mandate to fix. A fix frequently looks at something new. When a stock valuation reflects a dividend it should be harder to drive the market valuation purely on growth and capital appreciation leading to naughty and inappropriate stock option grants.