Finding or filling a job opening is much more efficient on the Internet than the traditional methods of connecting workers with employers. TMP Worldwide currently dominates the sector with its Monster.com site, and it will be extremely difficult for any other company to dethrone it.
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In the most recent Motley Fool Research Internet Report, we looked at the career sites that connect employers with potential employees. It's an exciting industry because the Internet provides a superior way to find a job and fill positions, and the online businesses in this field have some attractive financial attributes and are growing fast. Beyond having a classic "light" business model with little invested capital needed to operate their businesses, the career sites are also resistant to significant harm from a recession. After all, each new round of layoffs creates a new wave of job seekers surfing career sites like Monster.com or Hotjobs.com (Nasdaq: HOTJ). The network effect also has a very strong influence in the industry. For those new to this concept, the value of a network of buyers and sellers (or in this case, employers and employees) grows by the square of each additional member. If network A is twice as large as network B, network A is actually four times more valuable since there are four times as many possible connections between each potential buyer and seller. The most common example of the network effect in action is in the online auction industry, an industry the career sites have a lot in common with. The reason that eBay (Nasdaq: EBAY) has easily remained at the top of the online auction industry is that it has the largest network of buyers and sellers. Sellers want to list their items at the site with the most potential buyers, and buyers migrate to the sites with the largest selection. Once a network has enough critical momentum, the cycle feeds back on itself, making it incredibly difficult to topple the leader. In the online career industry, the network with the largest selection of jobs is the most attractive to job seekers, and the site that can efficiently deliver the largest pool of job applicants for a given opening is the most attractive for employers. Because of this, the online career industry is likely to be one where "winner takes most." At an absolute minimum, the leading career site has a leg up on its competitors and should have more pricing power as well as a lower dependency on advertising. Monster in the industry Monster.com not only has the largest number of unique visitors and job postings (roughly a half million), but the site also trumps the competition in just about every single usage metric. Perhaps the most telling statistic is the total time users spend at each career site, a metric which is akin to market share. According to Media Metrix's newly released March data, some 42.1% of the cumulative time spent on all career-oriented sites was spent on Monster.com, more than quadruple the share of its next largest competitor. Loophole creates contenders There are also different ways to run an online jobs market, and some employers and seekers may just not like Monster.com's style and policies. As they say, that's why they make vanilla for some people and chocolate for others, and it is also why Monster.com will always have some competition that runs their online sites slightly differently. Some of Monster's largest competitors are HotJobs.com; the CareerBuilder Network, started by traditional media companies Tribune (NYSE: TRB) and Knight Ridder (NYSE: KRI); and Headhunter.net (Nasdaq: HHNT). A monster investment? TMP Worldwide is also profitable and accelerating its earnings through margin improvement. In a nutshell, revenue growth is far outpacing the growth in the company's overhead costs. When improving margins are mixed with robust top-line growth, the combination can result in explosive profits. In its recent earnings release, the company said to expect full-year 2001 adjusted earnings per share in the range of $1.38 to $1.42, a solid improvement from the adjusted $1.02 per share the company earned in 2000. While the economic climate is cloudy and battering other companies around, TMP Worldwide appears to be the bucking the trend and actually expects to do quite well. If the company is indeed able to earn $1.40 per share in 2001, at this writing that would put the stock trading at just under 30 times forward earnings. Meanwhile, the company's long-term earnings growth rate is expected to be in the 30%-40% range. This valuation seems fair, but an argument can certainly be made that the shares are undervalued if one assumes that the company's profits will expand along with its competitive positioning. Either way, the bottom line remains that TMP's Monster.com is the current 500-lb. gorilla in the industry and has some unique sustainable competitive advantages over its peers. This alone should be reason enough to pique the interest of investors, and the stock is worthy of serious consideration -- especially if it drops any further from today's levels. Though I'm certainly not unbiased in my opinion, the most recent Internet Report is a great place to start further researching the industry in general and TMP specifically. Paul Larson lives in the mountains of Colorado. While he does own eBay, he does not (yet) own any of the other companies mentioned here. You can see Paul's complete stock holdings online. The Motley Fool is investors writing for investors.
There is no doubt who the monster is in the online career marketplace. TMP Worldwide (Nasdaq: TMPW) owns and operates Monster.com, by far the largest and most popular career site on the Internet.
While the network effect is strong in the online career sites, there is one factor that will likely keep a small handful of competitors to Monster.com alive and well. Unlike the online auction market, the sellers (employers) can list a single item (job) simultaneously at more than one site. This will likely keep several competitors nipping at Monster.com's heels and will prevent the company from abusing its pricing power.
Though Monster.com's owner TMP Worldwide does face some challenges, the company is the clear leader in a sector where those on top have a sustainable competitive advantage. As we said before, the online jobs market should be a "winner takes most" market, and right now, TMP Worldwide's Monster.com is clearly winning.
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