The recent set of financial results released by major ad agency holding groups have been a bit of a mixed bag. French giant Publicis Groupe had a strong quarter, posting 7.1 percent growth in organic revenues, and raising its full year guidance to five percent. Omnicom also saw organic growth, but at a much slower rate of 3.4 percent. But Interpublic Group’s revenues fell, with an organic drop in net revenues of 1.7 percent, and the agency lowered its full year forecast.
But digging deeper into these results, as well as other financial results released over the past week, there are plenty of signs that the overall advertising market is in decent health, despite wider macroeconomic difficulties.
Tech difficulties
Weakness in ad spend seems to be concentrated to certain types of advertisers. Despite its overall drop in revenues, IPG said that tech and telco clients were the only major sectors to significantly decrease spend. Many companies in the tech sector in particular have been going through a period of cost-cutting, which has resulted in pullbacks in ad spend. Omnicom and Publicis, which both saw overall growth, both similarly reference a slow quarter for tech and telco spending.
But elsewhere spend was much stronger. IPG for example reported strong growth in spend in automotive and financial services, food and beverage, healthcare, and consumer goods. Retail was the only sector beside tech and telcos which decreased, and IPG said this decrease was modest, and against very strong multi-year comparable performance.
S4 Capital, which also decreased its full-year outlook after a slower-than-expected first half of the year, similarly suggested that client troubles were concentrated in the tech sector. The company’s earnings report spoke of tech clients “remaining cautious and very focussed on the short term”.
And Snap, which saw a year-on-year dip in ad revenues in Q2, said that demand weakness was much more prominent in some specific sectors which “continue to face challenges that are unique to their sector”. But for other verticals including CPG, restaurants, and travel, Snap has seen “continued strength”.
A number of major non-tech advertisers have also explicitly referenced growing ad spend in their earnings reports. FMCG giant Unilever for example said that marketing investment over the first half of the year was up €400 million year-on-year. And while gross margin recovery is a focus for the company, CFO Graeme Pitkethly said on the earnings call that this is designed “to fuel incremental investment in brand and marketing”, meaning ad spend is likely to increase further,
French luxury brand holding group LVMH meanwhile said that it has been spending more on advertising and promotion. CFO Jean-Jacques Guiony said that advertising and promotion spending as a percentage of sales has increased from roughly 11 percent to 12 percent.
Better days ahead
The fact that falls in ad spend seem concentrated within a few sectors doesn’t change the fact that revenues have been hit for some agencies and media companies. But it does suggest that as the challenges specific to these sectors decrease, overall spend can pick up quickly.
Snap for example said that its guidance for Q3 sits between -5 percent and flat year-on-year growth. CFO Derek Andersen said that the fact that lower ad spend is being caused by sector-specific challenges gives less visibility into future ad spend.
Of course if tech and telcos’ woes continue, ad spend will continue to be depressed. But the fact that other sectors are growing spend despite the wider macroeconomic context – which effects all industries – is a promising sign for the industry.
