Monday, February 22, 1999

TMP Worldwide
(Nasdaq: TMPW)
Phone: 212-977-4200
Website: http://www.tmpworldwide.com
Price (2/18/99): $51


"When I grow up, I want to file all day.... I want to claw my way up to middle management.... I want to be underappreciated." So said the kids featured in the terrific Super Bowl ads run by TMP Worldwide's Monster.com online career services unit.

The point was clear: When we were young and the world seemed full of promise, none of us fantasized about having a dreary job. So why settle for that now?

Viewers responded in droves. While the three ads cost TMP about $4 million, they generated 2.2 million jobs searches in the ensuing 24-hour period, way above the half million that Monster.com had been averaging. With over 175,000 paid job listings and 5 million unique visitors per month, the site is a monster among online recruitment sites. The strong branding campaign only fortified its position.

While TMP's large and profitable yellow pages and offline recruitment advertising businesses still account for most of its revenues, investors have been enticed by the growth prospects for the firm's Web operations, which turned a small $0.2 million profit for the first nine months of FY98.

Indeed, word that TMP planned to run ads during the Super Bowl sent the shares doubling to an all-time high of $61 from a mid-December quote around $30. The stock has given back some of those gains, but it's still well above its October low.


TMP is a marketing services firm with 17,000 clients, including 400 of the Fortune 500 companies. It's the largest yellow pages advertising agency (25.3% of revenues for the first 10 months of FY98) and three times larger than its closest competitor. In 1997, TMP's target yellow pages market of national accounts tallied $1.7 billion.

It is also a leading recruitment advertising firm (42.2% of revenues), a business that consists of creating and placing help wanted ads in the classified sections of newspapers. In 1997, this was a $12 billion market.

TMP has also grown its job search and selection services (21.4% of revenues). In the last year, it has entered the executive search business with the acquisition of recruitment firms TASA Holding and Johnson, Smith, Knisely. Operating as TASA Worldwide, TMP's recruitment unit is now among the top ten recruitment firms internationally, with $60 million in annual revenue.

This doesn't include Morgan & Banks, Australia's largest executive recruitment firm, which TMP acquired in exchange for about 5.45 million shares.

Monster.com was created in January after TMP merged its two main job sites, Monster Board and Online Career Center. The site has a database of over 1 million resumes and charges employers a fee to list ads, which job seekers search like an online classified. A free personal job search agent continuously scans the site's database to find opportunities that match a job seeker's profile.

TMP doesn't break out Monster.com revenues, but total Internet services accounted for 11.1% of TMP's revenue for the first 10 months of FY98. Monster.com has dozens of strategic marketing alliances, including deals with America Online (NYSE: AOL), Yahoo! (Nasdaq: YHOO), Lycos (Nasdaq: LCOS), Excite (Nasdaq: XCIT), Netscape (Nasdaq: NSCP), Microsoft's (Nasdaq: MSFT) WebTV, General Electric's (NYSE: GE) NBC, and MCI Worldcom (Nasdaq: WCOM).

Competitors in the recruitment advertising market include Omnicom's (NYSE: OMC) Bernard Hodes Advertising unit; Nationwide Advertising Service, controlled by the Gund Brothers; and WPP Group's (Nasdaq: WPPGY) JWT Specialized Communications unit.

Competitors in the online job recruitment space include Bernard Hodes' CareerMosaic, HotJobs.com (with 1 million visitors per month), Headhunter.net (which is planning an IPO), and executive recruitment giant Korn/Ferry's (NYSE: KFY) Futurestep.com (which has 200,000 job candidate profiles on file). Other entries will come from Heidrick & Struggle, for high-level information technology jobs, and LAI Worldwide (Nasdaq: LAIX), for midlevel management.

Chair and CEO Andrew McKelvey has a controlling interest in the company, with a 68% voting stake. The company went public in December 1996 at $14 a share.


Income Statement*
12-month sales: $392.3 million
12-month income: $19.7 million
12-month EPS: $0.65
Profit Margin: 5.0%
Market Cap: $1,409.8 million (Based on 30.4 million shares)
(*Does not include Morgan & Banks)

Balance Sheet*
Cash: $22.4 million
Current Assets: $404.3 million
Current Liabilities: $402.9 million
Long-Term Debt: $134.0 million
(*Adjusted to include Morgan & Banks.)

Price-to-earnings: 71.3
Price-to-sales: 3.59


Probably the best way to have found TMP was to go looking for companies poised to benefit from the Internet, but not among the obvious access, portal, or e-commerce names. For job seekers learning how to submit e-resumes, TMP would have been a natural Peter Lynch "buy-what-you-know" stock.

In fact, the Web may be the perfect medium for individuals conducting job searches and for companies hunting for the best job candidates. This global, continuously updated medium is simply far more efficient at connecting jobs with potential employees than newspaper classified sections or other job posting vehicles can ever hope to be.

Both job hunters and employers can easily and cheaply include their information in a database and search that database for matches. As a result, spending on online recruitment ads should increase from $105 million in 1998 to $1.7 billion five years from now, according to Forrester Research.

The kicker is that online job search areas ought to work like other businesses built on horizontal networks of users, such as community-based auction site eBay (Nasdaq: EBAY). Tom Gardner has written eloquently about such easily scalable businesses, but the most obvious feature is the opportunity for a site to gain a competitive advantage by building a critical mass of users. Employers will flock to the areas with the most job seekers, who will in turn flock to the area with the most job offerings.

As the leading job search site, Monster.com seems well-positioned to benefit from this virtuous cycle. While the website might cannibalize some of TMP's traditional business, TMP believes that only 20% to 30% of job positions are typically advertised in print media -- so the overall recruitment market is much larger than has ever been tapped before.

TMP's traditional business gives the firm both a working relationship with many of the largest global employers and a source of steady profits. So TMP should have looked like an attractive Internet investment candidate.


To make Monster.com a genuine Web recruitment portal, TMP knows it must capitalize quickly on it first-mover status by continuing to build its brand. To promote Monster-com, the company plans to boost ad spending from $14 million in 1998 to $25 million to $30 million this year.

Analysts project TMP's Internet sales will grow from about $45 million in FY98 to $78 million in FY99. Over 90% of TMP's North American ad clients have already tested its Internet offerings, and 60% are now using them regularly.

TMP also has been beefing up its international offering of offline recruitment services in order to diversify its geographic exposure and to provide one-stop shopping for recruiters and job seekers alike. The Morgan & Banks acquisition, for example, greatly increases TMP's business, as reflected in these pro forma numbers.

             FY97  1st 9 months FY98
Revenue    $581.2          $473.4
Net income  $15.5           $14.9
EPS          $0.46           $0.42
Shares       33.6            35.9

(All numbers except EPS in millions)

Competition will heat up in the online job search business. Even so, Monster.com's market leadership and cool branding campaign suggest that it's the company to beat. That's why analysts are optimistic, projecting that TMP will deliver earnings of $0.67 per share for FY98 and $0.96 per share for FY99, with long-term growth put at 40%.

Trading at 48 times this year's earnings estimates, TMP sports a premium valuation, but not much of one compared to other Internet issues. Interested investors should take a closer look at the company's Q4 results, to be released around March 2.

-- Louis Corrigan

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