Ad Agency Holding Companies Celebrate Return Of Ad Revenue And Regained Confidence

A year ago, all the major ad agency holding companies were digging themselves out of a deep hole, as investors hedged their bets on the return of ad budgets and even the survival of traditional agencies.

Fast forward one year – and what a difference that year has made.

Omnicom lost more than a third of its market cap during the beginning of Q2 2020. IPG crated by more than half during the same time period. Since then, both of those stocks have climbed steadily, reclaiming and surpassing their value before the pandemic. IPG stock jumped more than 10% after the company reported its Q2 2021 revenue on Wednesday, reaching its highest price since 2001.

IPG’s net revenue in Q2 2021 was $2.27 billion, up $416 million since the same period last year – bear in mind, however, that year-over-year numbers are inflated across the board this year, since Q2 2020 was a nightmare.

“We want to come out of the pandemic a stronger company, and I think we’re showing that we’re well on our way there,” said IPG CEO Phillippe Krakowsky on the earnings call Wednesday.

Omnicom reported earnings this week as well. It had net income – which is to say, profit – of $348 million. That compares favorably with the loss of $24.5 million the agency group reported in Q2 2020.

Agencies did use the pandemic to cut expenses and seriously trim headcount. IPG said it expects to wring $160 million in annual savings from its cost-cutting efforts last year. But some expenses will return along with the economy.

“Looking forward, we expect to continue to see positive organic growth as client spend increases, albeit at a slower pace than we experienced in Q2,” Omnicom CEO John Wren told investors. That growth rate will slow down because Omnicom will shoulder more costs as employees return to the office and resume business travel, and as hiring efforts ramp up.

Wren said it’s difficult to factor those expenses into earnings forecasts, because the added agency costs come with growth in the economy and advertisers’ increasing spend.

Both Wren and Krakowsky noted the lag right now in hiring, which partially kept expenses down.

“Particularly in the U.S., the labor markets remain tight,” Wren said.

“Clearly, we’ve been dealing with the pressures of the talent market for the kind of digital and tech talent that has been in demand for a while,” echoed Krakowsky.

The agencies are also becoming more adept data stewards and data-driven targeters.

Companies that historically don’t collect first-party data troves, namely CPG brands, are among the biggest ad spenders. Krakowsky said those types of brands are working with IPG more and more to build first-party data assets and use it in their ad campaigns.

“They are very focused on data, and either are assessing their first-party data assets and understanding how they get organized so that they can begin to put them to work, or whether they’re further behind in terms of readiness,” he said.

Wren specified Omnicom’s precision targeting group as the part of the business he’s most optimistic about.

He also noted that third-party services, or when Omnicom works with a technology vendor on behalf of its client, were up $275 million in Q2 compared to last year.

While exactly how the advertising market shakes out this year remains in doubt, agency holding companies seem to have regained confidence, not to mention many billions of dollars in evaporated market cap from 2019 and 2020.

“We can’t predict the future,” said Omnicom’s Wren. “But we do know that we’ve lived through a hell of a past, and have done it successfully. So that gives us confidence.”

Enjoying this content?

Sign up to be an AdExchanger Member today and get unlimited access to articles like this, plus proprietary data and research, conference discounts, on-demand access to event content, and more!

Join Today!