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Media and Data are Driving Recovery for the Big Four Holding Groups

  29 April, 2021

In the first quarter of 2020, the big four agency holding groups (WPP, Publicis Groupe, Interpublic Group and Omnicom) were just starting to see the first effects of the COVID-19 pandemic. Now one year on, their first quarter financial results show a cautious return to optimism, as each of the major agency groups beat analyst expectations.

A deeper dive into the holding group’s Q1 results show a few common trends across all four. Travel and leisure spending, for example, is still yet to return, while the automotive sector has started to recover. Media agency revenues have tended to recover faster than creative revenues. And data and tech investments feature heavily in all four holding group’s plans for the future.

But there are also some interesting discrepancies between the four agency groups – for example in which markets are recovering fastest, and in the return to spending of some of the product categories hardest hit by the pandemic.

Organic growth beat expectations

Organic revenue is usually one of the most important metrics financial analysts used when assessing results, since this ignores growth generated by acquisitions and just measures the strength of a company’s existing operations.

By this measure, WPP came out top in the first quarter, posting organic revenue growth of 3.1 percent. Publicis was the next best performer at 2.8 percent organic growth, then IPG at 1.9 percent growth. Omnicom was the only company to post a fall in organic revenues, down 1.8 percent.

While this shows quite a spread in terms of performance, all of the agency groups beat out analyst expectations. And this optimism has been reflected in each of the big four’s stock prices. All four have seen their share price rise since Publicis, the first of the four to report, released its Q1 results. Publicis is up 4.1 percent, Omnicom is up 3.5 percent, WPP is up 3.1 percent, and IPG is up 4.0 percent.

Mixed fates within individual markets

Looking at individual markets, APAC has been the only strong performer for each of the big four. It was the only market where Omnicom found organic revenue growth, and the other three all grew in APAC too.

But this is likely largely due to the fact that APAC was the region hardest hit by the pandemic in Q1 last year. As such, this year’s results are being compared with a lower baseline in APAC than they are in other markets. This is shown particularly by WPP’s results in China, where organic revenues were up 18.4 percent year-on-year.

In other markets, fortunes tended to be quite mixed, and there are no other global regions where results have been unanimously positive.

The US for example was the brightest spot in Publicis’s results, with organic revenues up 5.1 percent. For the other three, US results were much more muted: WPP was up 0.7 percent, IPG was down 0.2 percent, and Omnicom was down 1.0 percent.

Europe meanwhile was a highlight for IPG in particular, which found 12.4 percent growth on the continent, and 3.5 percent growth in the UK. And while WPP didn’t give an overall figure for Europe, it reported 3.9 percent growth in the UK, 2.5 percent growth in Germany, and 1.0 percent growth in France.

But Publicis and Omnicom both saw drops in organic revenues in Europe. Publcis was down 1.8 percent for Europe as a whole while Omnicom was down 6.4 percent in the UK and 3.2 percent on the continent.

Media and Data Driving Growth

Across all four of the holding groups, the areas driving growth were fairly consistent, with media and data services generally credited as the strongest drivers of growth.

At WPP for example, organic revenue growth at its media arm GroupM specifically outpaced growth with WPP’s overall portfolio of global integrated agencies (5.8 percent compared to 2.8 percent).

Publicis’s data unit Epsilon grew 4.7 percent, and digital media grew by double digits, while creative revenues were broadly flat.

And IPG chief financial officer Ellen Johnson highlighted “solid growth by our offerings in media, data and tech at FCB and at McCann Worldgroup”.

Omnicom doesn’t report media separately from creative. But its precision marketing category, where media plays a big role, grew by 7.2 percent, compared with its overall advertising segment, which grew 1.2 percent.

Automotive Recovering, Travel and Leisure Still Down

Looking at which brand segments are returning to advertising, a lot of the stronger performers were the types of businesses which managed to continue spending throughout the pandemic.

Revenues from the healthcare segment, for example, increased for all of the big four, with WPP reporting 13.4 percent growth and Publicis reporting 24 percent growth.

But some of the segments hardest hit by the pandemic have started to resume spendin. For example there seems to have been something of a recovery for the automotive sector. WPP reported automotive revenues down 0.7 percent year-on-year, while the segment was flat for Publicis. This marks a solid improvement, since automotive revenues dropped significantly during the height of the pandemic.

The travel and leisure sector however is still yet to recover. The segment was down 34.5 percent for WPP, and down 25 percent for Publicis.

For other areas affected by the pandemic, results were more mixed. Retail for example was picked out as a highlight for IPG (though no specific figure was given), and grew five percent at Publicis. But WPP reported a 4.7 percent drop in retail revenues.

Simplifying and Investing in Data and Technology

Investmenting in data and technology was a common theme across all four of the holding groups in their strategies for future growth. And alongside this investment, each of the four are also looking for ways to use their data assets more efficiently across their entire businesses.

IPG CEO Philippe Krakowsky for example said his company’s “ability to create marketing and media solutions that bring together creativity, technology and data in order to solve for higher order client opportunities are what drove growth in the first quarter”. He mentioned that data unit Kinesso’s behavioural sciences team has been engaging more with IPG’s advertising and marketing services agencies, and said the group will look to keep moving in this direction.

Omnicom CEO John Wren said his business will continue to “pursue investments with a specific focus in precision marketing, martech and digital transformation, commerce, media and healthcare”. And similarly to IPG, Omnciom will look to utilise its data capabilities across more of its agencies.

“Our practice areas beyond our media businesses are increasingly leveraging Omni to identify insights for their specific disciplines and clients,” said Wren.

Publicis CEO Arthur Sadoun picked out three specific areas where Publicis will look to expand its data capabilities: in advanced television, in ecommerce, and in identity resolution. These efforts will be spearheaded by PMX, Publicis Sapient, and Epsilon respectively.

And WPP chief executive Mark Read said his company’s data capabilities will be strengthened by this week’s launch of Choreograph, which brings together the specialist data units of GroupM and Wunderman Thompson into a single company.

Read also said WPP is continuing to build out its in-house tech capabilities, pointing to its acquisition of Brazilian tech company DTI. “That’s really our first move into more of the application development part of our technology stack,” he said, adding that previously WPP would have outsourced for application development.

Still Lack of Clarity for the Future

When it comes to looking ahead to the rest of 2021, all of the big four are fairly united in believing it’s still too early to make any certain predictions.

IPG’s Krakowsky gave the most detailed forecast, predicting organic net revenue growth of 5-6 percent for the full year. WPP predicted organic revenue growth across the whole year in the mid-single digits, and Publicis forecasted organic revenue growth in Q2 of between 8-10 percent. But beyond this, the holding group CEOs reiterated that while organic revenues will almost certainly grow this year (since in future quarters, revenues will be compared with last year’s deflated figures), there’s still a lot of uncertainty around how the rest of the year will play out.

“Let’s be clear, the crisis is far from over,” said Publicis’ Sadoun. “We do not underestimate the challenges that are ahead for the economy, our clients, and ourselves.”

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