On Wednesday Monster Worldwide (Nasdaq: MNST), the parent company of the well known Monster.com website indicated that it expects it's first quarter revenue to come in under plan due to slower growth in North American Internet advertising.

Not surprisingly, the stock sank big time on the news. In fact, as of mid-day it was down about 12%.

So what gives?

Frankly, I think that the reaction by the investment community was a bit excessive.

After all, the revised revenue forecast came in between $328 to $329 million, which in the grand scheme of things isn't too far below the $330 to $338 million the company had previously forecasted.

Again, it's hardly the end of the world.


But Does That Mean That The Stock Is Oversold And Should Be Bought?
I wouldn't go that far folks. In spite of what I perceive as an overreaction, the stock is still not a bargain in my mind. Plus there's a wildcard that all potential investors should consider – that's the potential that shareholder suits could emerge as the result of the company's stock options issuance practices.

Here Is What I Am Seeing – The Big Picture
The company has said that its full year revenue should come in somewhere between $1.36 billion and $1.41 billion which is in the ballpark of the roughly $1.4 billion Wall Street is looking for. However, you'll note that the company didn't quantify any bottom line earnings numbers.

Why is that?

I think there are several reasons. First off, the weak (Internet) advertising environment and the company's apparent inability to predict the future of "ad revs" is a huge concern. Seriously folks, this can materialize into a big problem for Monster because the company depends upon advertising to drive its business, and to drive eyeballs to different points on its "Monster.com" site.

In any case, the outlook for advertising (and not just at Monster) is in a word - murky. And with the summer doldrums and a seasonal slackening in Internet traffic just around the corner, I'm concerned that this blurry outlook could continue to stymie earnings – even beyond the first quarter.

Another thing I don't like is that you if look at the company's fourth quarter results which were released back in early February, you'll note that while sales increased at about a 33% clip, salaries increased almost in parity (at about 32%), and office expenses grew at almost 47% (over the comparable period a year ago).

My point is that the company doesn't seem to have a lot of leverage (or at least as much as I'd like to see) over its expenses. And that could mean trouble, particularly if the job market dries up as the economy slows.

Problems By Association
The rest of the job market group isn't fairing so well either. In fact, at least one big name labor provider, Labor Ready (NYSE: LRW) was downgraded by Goldman Sachs (NYSE: GS) to "sell" from "neutral." In addition, other labor providers including Robert Half (NYSE: RHI) have been under pressure due to concerns over a slowing economy.

Hold the email folks - please. While I realize that Monster isn't exactly in the same boat as the companies (particularly Labor Ready because that company focuses on blue collar type jobs) it is still somewhat "guilty by association if you know what I mean. In other words, like it or not Monster is bound to lumped in with these other companies by the investment community.

The Options Backdating Wildcard
But the biggest wild card is what will happen to the company, if anything, as the result of the stock options shenanigans that may or may not have taken place over the last several years.

You see, back in December the company restated earnings to the tune of $271.9 million (net of tax) to reflect the cost of stock options granted between 1997 and 2003. Now the good news is that it looks like the big charges are out of the way.

However, the bad news is that I have a hunch that plaintiff's attorneys might take advantage of this re-statement and try to gain a settlement from the company on the behalf of shareholders – alleging some sort of fraud. My hunch is further fueled by the fact that the company's former general counsel, Myron Olesnyckyj's pleaded guilty (in mid February) to backdating stock options while at the firm.

Again, I think these issues will only exacerbate the situation.

Now some will accuse me of jumping the gun (because again maybe my hunch is wrong nothing will come of it). But frankly, I'm concerned that a shareholder suit would really stymie the company from two perspectives.

First, from an investor relations perspective in that it could cause retail and institutional investors to flee the stock. The second concern is that it could cost the company a bundle of money to defend itself. And again, right now is not exactly an opportune time for that to happen.

Bottom Line
Monster is a decent company. And I think that the sell-off might have been a bit harsh (after the revenue warning). However, as I mentioned above there are other valid reasons that I think it makes sense to steer clear of the stock.

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