Days after one influential financial institution issued a “double downgrade” of WPP, another has downgraded the valuations of the entire publicly traded ad sector it covers, including Interpublic, Omnicom, Publicis and WPP.
“Ahead of second quarter 2017 earnings. we revise our outlook and valuations on each,” Pivotal Research Group analyst Brian Wieser wrote in an advisory sent to investors early this morning.
“With reduced price targets, we continue to rate each of them ‘Hold,’” Wieser continued, adding, “While we continue to expect growth for agencies, challenges that became much more visible by the middle of last year are likely to compress expansion in years ahead vs. prior expectations.”
Wieser characterized current market conditions as a “difficult time for the agency holding companies.
“Between slowing underlying business growth for core clients, zero-based budgeting at many of them, more aggressive applications of procurement-based processes, the ongoing impact on fees from transparency-related issues, like-for-like fee compression, threats of wider-scale in-housing of programmatic buying, slowing shifts of spending into digital media among the clients agencies service and competitive threats from IT services firms (i.e. “the consultants”), there’s not a lot of good news to point to for the sector.”
While Madison Avenue has historically innovated and found new ways of servicing clients and generating revenues, Wieser cautioned that the marketplace may have fundamentally changed.
The “fragmentation of media is ongoing, and requires an increasing array of services,” he explained, adding that has caused his equities research team to “alter longer-term growth variables incorporated into our models in a negative direction at the present time.”