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Home Marketing B2B Marketing

Legacy ad agency outlooks perk up despite fragile environment

September 8, 2022
in B2B Marketing
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  • Interpublic Group of Companies (IPG), Omnicom Group and Publicis Groupe raised their 2022 outlooks in their most recent earnings reports, which were generally strong.
  • IPG adjusted its full-year projections for organic revenue growth, a key metric of agency health, upward to 6.5% from 6% forecasted in April. Publicis now expects 6% to 7% growth on the year over previous targets of 4% to 5%, while Omincom anticipates gains of 6.5% to 7% versus earlier estimates of 6% to 6.5%.
  • Strength was attributed to areas like e-commerce, retail media and data-driven marketing, as well as greater operational efficiency. Agency resilience could be a promising sign for the industry as the economic picture stays gloomy.  

Soaring inflation and recessionary fears did not appear to faze Madison Avenue in an otherwise patchy first half. Agency performance remained strong in the second quarter, continuing a theme from the prior period, when the category held steady despite disruptions from the Ukraine war and ongoing pandemic concerns. 

Breaking the latest results out by company, Omnicom saw organic revenue up 11.3% year-on-year in Q2 to $403.8 million. Publicis’ organic growth for the period increased 10.3% YoY, with Publicis Sapient and data-marketing arm Epsilon up 19.1% and 13.7%, respectively. IPG reported a 7.9% organic revenue gain in Q2. 

Three of the Big Four ad-holding groups offering a rosier outlook for the full year signals agencies are confident they can weather future volatility, which seems likely as marketers contend with a worsening economic picture.

Ad spending in June declined for the first time in 15 months, with a notable hit to linear TV, according to Standard Media Index’s latest Core data insights. Those pullbacks could get steeper if the macro situation doesn’t improve, though the fourth quarter and holiday window tend to carry a spike in media activity that may benefit agencies. 

The run of earnings shows agencies have invested in capabilities that are paying off in a downturn. Much of M&A for the sector has focused on e-commerce and performance marketing following a pandemic-driven shift to online sales channels. Broader mandates around digital transformation also continue to inform brand strategy as marketers prepare for changes like the deprecation of third-party cookies, which has boosted alternative methods of reaching consumers including retail media.

On a call discussing the Q2 results with analysts, Omnicom CEO John Wren highlighted the company’s proliferating number of e-commerce partnerships with companies like Amazon, Instacart, Kroger and Walmart. The executive said the group now has 1,500 employees who specialize in helping clients navigate retail media. That number could grow.

“Going forward, we will continue to invest organically and through acquisitions in e-commerce and retail media,” said Wren, adding that Omincom will also look to build on strengths in precision marketing, performance media and elsewhere. 

That said, agency leaders seem aware that the current environment is fragile. Along with rising costs, key markets like the U.S. remain starkly divided and prone to civil strife. Wren decried the recent spate of mass shootings and the Supreme Court’s decision to overturn Roe V. Wade on the analyst call. Many agencies have moved to help employees struggling with abortion care access, including by covering travel costs. 

Meanwhile, upstarts that have put pressure on the agency world’s old guard are contending with some challenges of their own. S4 Capital, a digitally oriented network led by former WPP chief Martin Sorrell, has enacted a hiring freeze for the rest of the year and issued a profit warning as climbing operating costs weigh on performance.

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