It’s shaping up to be a year to forget for the big agency holding companies, in terms of growth, which remains quite stunted through the first nine months of the year.
Pivotal analyst Brian Wieser is out with a Q3 rundown of organic revenue growth that estimates combined growth of just 0.5% for WPP, Omnicom, Interpublic, Publicis and Havas. That’s in line with Wieser’s estimate for the second quarter, which was just a tad better than Q1’s 0.3% growth.
That lack of growth is also reflected the companies’ stock prices which are all trading near their yearly lows (excludes Havas, now part of Vivendi).
Yeah, the HC’s will be glad to see this year behind them, that’s for sure. No doubt, they’re longing for the good old days of 2014 and 2015 when growth levels were above 4%. Wieser reminds us in his analysis that the companies referenced above didn’t have a collective decline in organic growth during any quarter between 2010 and 2016.
Of course, when clients aren’t doing as well as they had been doing—as many of them aren’t—it shouldn’t come as big surprise that they’re cutting back on advertising and marketing expenses to boost their bottom lines. That’s a time-honored practice.
It’s also no secret that clients have been putting the squeeze on agency fees for a while now. And the great “transparency” debate and ensuing report released last year by the Association of National Advertisers is likely having an impact.
Notes Wieser: “While it’s hard to say that the pace at which like-for-like fees are compressing has increased, in the wake of the K2 transparency report, clients have generally tightened up contract language to have the effect of eliminating some of the ways in which agencies generated some of their revenues over the past decade.” Like by pocketing undisclosed rebates from media vendors, for instance.
The slow-down in digital spending is also taking its toll notes Wieser, who doesn’t think consultant competition or the in-housing of marketing services are having much impact on the big HCs at least for now.
All that said, Wieser remains confident that the ad firms will conjure up new businesses and revenue streams in the years ahead to help boost growth. In the meantime, he adds, it’s a good time for investors to exploit lagging Adland stocks, as evidenced by his recent upgrades of Interpublic, Publicis and WPP.
Here’s to 2018, and new revenue streams.