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Is Monster Facing a Buyout?

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While earnings will not likely exceed expectations, the potential for 30% upside in a buyout makes employment site an interesting speculative investment.

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MINYANVILLE ORIGINAL As technology and websites have evolved over the years, many industries have changed for the better. As programmers have improved upon algorithms and overall usability, we as end users have benefitted. One example of a major sea change in past years can be seen with the online job listings market. Monster Worldwide (NYSE:MWW), once the undisputed leader has been unseated by newcomers such as Indeed.com and LinkedIn (NYSE:LNKD).

If you are an active job seeker, I'm sure you've heard of Indeed and most likely have a profile set up on the corporate social networking site LinkedIn. But do you still use Monster? The situation smells so strikingly familiar to the situation with Facebook (NASDAQ:FB) and Myspace that I had to draw parallels.

Myspace, the first major player in social media, was eventually knocked off from its perch by Facebook. The reasons for its fall were varied. Myspace pages became cluttered, as users were given freedom to design their profile pages, offering no uniformity across the site. Integration with other media such as video and music was clunky and not quite up to handling the influx of new multimedia applications. Facebook came along and offered a clean, simple, and irresistible service. Once users made the move to Facebook from Myspace, there was no turning back.

Can the same be said with Monster and Linkedin/Indeed? I think the cases are similar but not exactly comparable. First, most people nowadays with pure personal social networking sites are typically devoted to just one service. The cost of switching is too high -- moving pictures, waiting for new friends to arrive, etc. No one wanted to move from Facebook to Google (NASDAQ:GOOG) Plus.

With jobs websites, people typically want to broadcast themselves to as many avenues as possible. If I set up a profile on LinkedIn to network with other connections, I might still visit Monster to look for a new job. Therefore if Monster were providing a valuable service, then it can still survive.

But have you been to Monster lately? While I wouldn't consider Monster a 'social' website like LinkedIn, the site, like Myspace, has become clunky and littered with advertisements. The reason that Linkedin and Indeed have become so successful is because of the simplicity in design and because of the features available (like Facebook). Monster has been behind the curve in innovation, and lacks any sort of social aspect (like Myspace). It's pretty rare to find a job nowadays that isn't listed on Indeed. What sort of value does Monster now provide? Business customers who used to rely on Monster to post jobs or search for candidates can now do so freely on Indeed or LinkedIn.

Monster itself has essentially acknowledged that it will be harder to compete against hungrier foes. The company recently announced that it has engaged several advisors to help it pursue "strategic alternatives" which would most likely lead to an outright sale of the company. So the question here isn't whether or not Monster is struggling (it most certainly is), but whether or not investors might be able to capitalize on the potential acquisition of the company.

As a reference, competitor Indeed was just acquired by Recruit, a provider of HR and information services based in Japan. Rumors are that the acquisition was closed for near $1 billion, a sizeable price to pay considering Indeed only brought in $150 million in revenues in the past year. Even though business at Monster has slowed, the company still managed $1 billion in revenues for 2011 and should produce a similar total for the full year 2012. And according to Compete.com, Web traffic to Monster.com is still nothing to sneeze at: In September, Monster.com saw 18 million unique visitors, not too far behind LinkedIn (25 million visitors) and Indeed.com (23 million visitors).

But let's face facts: Any Monster acquisition won't be made at the premium paid for Indeed, which is a property on the rise. Yet, Monster still might be a good candidate for a private equity firm looking for a turnaround play. Over the past trailing 12 months, Monster earned $135 million in EBITDA, good for a EV/EBITDA ratio of 6x. Someone might be willing to pay $1 billion for Monster, which would put a potential acquisition price at near $9.25. By my estimations, $10 could be a fair guestimate for what Monster might fetch in a buyout.

Monster is scheduled to report earnings on Tuesday October 30, and my guess is that the company struggles will continue. Investors will be listening closely for any keys from management about potential takeout discussions. Private Equity firm Axel Springer, which had been rumored to be a potential acquirer of Monster, recently denied that it had discussed any deals.

As much as Monster has become the MySpace of the online job market, I think that a buyout is still a very strong possibility. While the site has become an online graveyard of sorts, the brand name and website still have a strong position in the marketplace. I would expect that someone will come in and attempt to turnaround the struggling company. While I anticipate that earnings will not exceed expectations next Tuesday, the potential for 30% upside in a buyout (assuming a $10 takeout price) makes Monster an interesting speculative investment.

Twitter: @bostoncfa
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