Taking Stock: Job Boards Need Full Recovery To Benefit

The highlight of this year's Super Bowl clearly wasn't the Oakland Raiders' offense, so let's look at some of the action between plays when companies battled each other via costly 30-second ads. The price tag was about $2.1 million per spot. For the fifth year in a row, Monster.com and HotJobs, now part of Yahoo (Nasdaq-YHOO), aired competing commercials. HotJobs had the less-interesting commercial with "The Dream Connection." Meanwhile, Monster showed an unmanned 18-wheeler careening through a small town--the point being, of course, that Monster could help you locate a driver for that truck.

It would seem that online recruitment services such as Monster and HotJobs would do well in an economy where the unemployment rate stands at 6%. Millions of Americans are turning to the Internet in their search for new employment. However, this might not be the case when the economy recovers this time around.

Monster, which is part of TMP Worldwide (Nasdaq-TMPW), is more than five times bigger than HotJobs in terms of revenue. During the third quarter of 2002, Monster generated $128.3 million in revenue, but that was a decrease of 26.4% from the same quarter a year earlier and down 1.8% from the previous quarter. HotJobs generated $22.2 million in revenue during the fourth quarter, down 3% from the prior quarter. Both companies' revenue comes from employers paying for either posting a job opening or searching the resumé database.

The U.S. economy seems to have entered a precarious state. The housing sector continues to grow and this has fueled growth in housing-related sectors such as mortgage lending. The federal government and the defense sectors are also growing, as is health care. But growth in these areas appears to be offset by either slow growth or contraction in a host of other sectors. Technology and telecom are still reeling from the bust, though the technology sector seems to have stabilized. Business investment in general has been anemic, and the travel sector has yet to recover from the terrorist attacks. Several states are facing their biggest budget crisis since World War II, which inevitably will lead to job cuts and reductions in benefits at the state level. Finally, consumers are sitting on an unbelievable amount of debt, with leverage remaining high. This implies that the spurt of consumer spending that normally occurs in an economic recovery might be absent this time around. Businesses will be hesitant to invest if consumer spending appears to falter, while the possibility of war with Iraq does nothing beneficial for consumer or business spending.

The upshot is that this economic recovery could very well be a jobless ones. As such, economic growth will occur but job growth will be absent or muted. Companies will be reluctant to hire, meaning they won't spend money to place a job ad or browse the resumé database.

HotJobs won't make a difference in Yahoo's financials, since it accounts for less than 8% of revenue. Spending on advertising is more important for Yahoo. Monster, though, generates about 45% of TMP Worldwide's revenue. TMP's stock looks expensive to me at a price per earnings ratio of 31 times 2003 earnings, already discounting any possible substantial recovery in the job market.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected].

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