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Tickers in this Article: MWW, JOBS, RHI, DHX, KFRC, LNKD
Mr. Market has a very odd sense of humor. Two years and five months ago, I wrote an article about Monster Worldwide (NYSE:MWW), parent of Monster.com, the world's leading online employment solution. At the time, Monster was starting to see double-digit declines in revenue and operating income was quickly disappearing. Despite clear indications its business was on the rocks, I believed its stock price would recover long-term. Thus, I recommended investors buy despite short-term woes that would see the stock plunge to below $6 just one month after my recommendation. Subsequent quarters were equally bleak. Yet, as of July 15, its stock is up 48% since February 2009, just under 450 basis points less than the S&P 500 over the same period. That's what I call resilience. For me, the glass is half-full at Monster Worldwide. (For more on long term investing, check out Long-Term Investing: Hot Or Not?)

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Monster Worldwide and Peers - Performance YTD

Company
Total Return - YTD
Monster Worldwide (NYSE:MWW)
(43.8%)
51Job (Nasdaq:JOBS)
22.3%
Robert Half International (NYSE:RHI)
(16.1%)
Dice Holdings (NYSE:DHX)
(9.6%)
Kforce (Nasdaq:KFRC)
(16.7%)
What's Happening?
The stock continues to perform poorly, down 43.8% year-to-date, compared to a gain of 5.7% for the index. This has me wondering what's causing its latest slide. The staffing and outsourcing services industry is doing poorly, which doesn't help, but Monster's drop is easily the worst of the bunch. There has to be more to the story. LinkedIn (Nasdaq:LNKD) recently banned API access for Monster's BeKnown professional networking app for Facebook because it was violating the terms of service by potentially profiting from the API. While social media is front and center these days, it's doubtful this had any bearing on Monster's massive drop in 2011. In fact, I'd say probably the opposite. On June 28, it launched BeKnown and its stock jumped 9% that day on high volume. Analysts see a hit on its hands and, although it's still very early, teaming with Facebook could bring significant future profits once it monetizes the site. It has to be something else.

Slim Profits
Monster announces second quarter profits July 25. We'll know more then about its success improving its profitability. In the first quarter, it managed to generate an operating profit of $1.5 million on $261 million in revenue. In the same quarter of 2010, it lost $35 million on revenues of $215 million. We're definitely getting closer. Going back over the past five opening quarters, its cumulative operating profit from those five quarters was $42.5 million on $1.5 billion in revenue. That's an operating margin of 2.8%. It's not the stuff of champions. Especially when you consider that in the first quarter of 2007, when it hit its five-year high of $54.79, its operating margin was 17.6% - 1480 basis points higher than the cumulative. This kind of comparison would put a damper on any stock, but when you're talking about a company that benefits more than most from a strong employment situation, it's understandable why investors have run for the exits. However, it doesn't make it right and I'll tell you why. (For more on value investing, read The Value Investor's Handbook.)

Valuation
Any business that sees its revenues cut by one-third in just two years is going to feel some pain. Don't believe me? Liz Claiborne ended 2006 with $5 billion in revenue and a stock price of $43.46. Four years later, its revenues were $2.5 billion and its stock price was $7.16. The one iconic brand lost 50% of its revenues and 84% of its market value. It happens to the best of them.

However, as my wife's 99-year-old grandmother used to say, "If life knocks you down, you have one choice - and that's to get up, dust yourself off and move on." That's exactly what Monster is doing. If the company meets its first quarter guidance for all of 2011, revenues should hit $1.1 billion with non-GAAP earnings per share of 36 cents. With approximately 122 million shares outstanding, that's an operating profit of $71 million with a 6.2% margin. It's not back to double-digits mind you, but it's heading that way despite a sluggish jobs market.

At the end of the day, I prefer to believe that Monster with $1.1 billion in revenue and the potential to deliver $200 million or more in operating income is worth more than 20% of LinkedIn's current value of $8.7 billion. After all, LinkedIn is the newcomer to the internet with revenues one-quarter those of Monster Worldwide.

The Bottom Line
I thought 2010 would be a better year for Monster and it wasn't. This year is turning out to be much better. At $13 and change, Monster's stock is cheap, but not for long. I see the glass half-full when it comes to Monster. (To learn more about value investing and how it can yield you high returns, check out Value Investing + Relative Strength = Higher Returns.)

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