Monster's Monstrous Appetite For Cash

Whoever thinks hope springs eternal never was stuck in a dead-end job. That's why Monster.com's shrewd ads and slogans -- "Never settle" and "Today's the day" -- have proved so infectious. Nearly 47,000 souls each day post résumés at Monster, many in search of fresh hope. For this, they pay nothing.

Investors in Monster Worldwide (MNST ), parent of the No. 1 online employment service, should be so lucky. Not that they are without hope. One glance at Monster's stock chart -- it nearly touched 30 in April from a low near 10 last year -- will show you the magnitude of their current aspirations. The trouble is the price they have been paying. At 26 a share, the stock is trading at 47 times this year's expected earnings, all in the hope that Monster someday will wind up as one of the great Internet businesses -- even as cash keeps going out the door faster than it comes in.

THIS DYNAMIC AT MONSTER is not at first easy to spot, especially against a background of strong growth in jobs and Googillionaires. Last year, Monster posted net from continuing operations of $7.3 million, up from a loss of $15 million in 2002, despite a 3% decline in revenues. Better yet, in this year's first quarter, Monster saw revenues climb 11% and continuing operations deliver net of $12.6 million, way up from a $28.5 million loss in 2003. Comeback City, right?

Maybe, but Monster's cash-flow statements suggest it might want to get a better hold on its own purse strings. It's true, as CEO Andrew McKelvey told me, that Monster often has generated cash from operations. But the question is: What has the company been spending it on?

One big outlay has been acquisitions, a keystone of Monster's growth strategy. An earlier binge of deals led Monster in 2002, when accounting rules changed, to post a $428 million charge recognizing that it would not recover the full cost of businesses that it had bought. With that, plus a spin-off and operating losses, Monster's tangible net worth plunged from $548 million in 2000 to $20 million last year. This despite Monster having raised $687 million in those years by selling stock to the public and employee stock-option holders.

In January the company tapped public investors for a fresh $55.7 million. Already it has spent all of that and more on acquisitions. In March it bought the operator of a site focused on U.S. military personnel and veterans, Military.com, for $39.5 million. In April it agreed to buy from Swiss staffing giant Adecco International (ADO ) a European site, jobpilot, for $89 million in stock and cash. These deals may work out better than those Monster made amid the Internet bubble. But they hardly came cheap. Adecco turned a $24 million gain after owning jobpilot less than two years. Monster expects at least half the cost of both sites to go on its books as goodwill, or the excess paid over the acquired assets' fair values.

A second major growth initiative has Monster hiring hundreds of phone sales reps to push its recruitment services among small and medium-size U.S. businesses. These employers spend some $4 billion a year on help-wanted ads, McKelvey figures. But you have to wonder: Is selling in this decidedly analog way the kind of marketing that helped Google, for example, generate $179 million in cash last year, even after subtracting all cash spent on capital projects and acquisitions? Or eBay (EBAY ) $292 million? Or Amazon.com (AMZN ) $346 million? On this basis, Monster used $24 million in cash last year and expects that 2004 will be yet one more year in which its corporate strategy burns cash. This can go on eternally -- or at least as long as investors keep hope alive.

By Robert Barker

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