Stagwell reported net revenue of $539 million for the second quarter, down 3% from the same period a year ago. Organic growth (which excludes M&A and currency impact) was down 5%.
The company cited clients in the slumping technology sector as a primary cause for the decline in the numbers and noted that the slippage was mainly in the U.S. and across its main operating units including integrated agencies, brand performance and communications networks. Revenue from clients in the retail sector were also off by nearly 30%. And the writers’ and actors’ strikes have hurt business in the entertainment sector.
The firm cut way back on its organic growth outlook for the year indicating it now expects between 0 and 2% growth. The earlier guidance had been between 7% to 10% growth with double-digit growth expected in the last two quarters of the year.
Company shares were down around 5% in early trading Tuesday on the news.
CEO Mark Penn said he believes that the marketing industry has reached “the bottom” of a down cycle. The company expects to show some sequential improvement in both the third and fourth quarters, said Penn and is “well positioned” for what he said should be a “banner” 2024 that will be buoyed by political spending that is projected to reach a record $12 billion.
The company has cut staff to address its growth decline with salary savings expected to total around $50 million for the full year. It is also taking further steps to centralize operations and utilize automation platforms to gain greater efficiency, Penn said.
CFO Frank Lanuto added that the firm is further consolidating its real estate portfolio with Q2 reflecting a $9 million impairment charge.
Also, record new business in Q2 of $75 million in annualized revenue will be kicking in in subsequent quarters. Wins included Patagonia, Wingstop, Buffalo Wild Wings and 7 recent wins at agency CPB, which recently underwent a management reorganization.
The company is working to forge larger and broader client relationships that depend less on small projects, Penn said, noting that the top 100 clients now account for 50% of company net revenues. And that cluster posted organic growth of 15% in Q2.
Penn said the company’s new business pipeline is more robust than it has ever been with the firm expecting to be invited to pitches totaling $1.2 billion (billings) this year, which would be a record.
The company also has high expectations for its Stagwell Marketing Cloud suite of products including its augmented reality platform for outdoor venues, ARound and its PRophet tool for the PR industry. The Cloud unit generated revenues of $48 million in Q2, up 19% from the prior year.
Like other holding companies Stagwell is investing heavily in generative AI technology, which Penn opined may likely impact “almost all customer interfaces.” While the news and buzz surrounding the technology has consumed the industry for nearly a year, “we haven’t even scratched the surface” on the impact that generative AI will ultimately have on the industry," said Penn.
On the international front, expanding in Latin America is priority one while the Middle East is number two, said Penn.
Stagwell's down quarter is line with results from most of the other ad marketing holding firms reporting Q2 results to date, with the tech slump appearing to be a big problem shared across the industry.
UPDATE: Stagwell shares recovered morning trading declines to close up 1.2% on Tuesday.