IPG had a bad year.
Tech clients slashed their ad spend, which hurt IPG’s bottom line. Its digital agencies underperformed. Meanwhile, economic concerns and geopolitical unrest from the ongoing conflicts in Ukraine and the Gaza Strip spooked clients, leading to “conservatism,” CEO Philippe Krakowsky told investors during IPG’s earnings call on Thursday.
The agency holding company’s organic net revenue stayed flat in 2023, ticking down 0.1% to $9.4 billion from 2022. It fared slightly better in Q4 than in previous quarters, with organic net revenue increasing 1.7% YOY to $2.59 billion from $2.55 billion in Q4 2022.
IPG shares rose just over 1% Thursday morning following the call, although they’ve fallen by more than 5% over the past year.
Tech troubles
Tech and telcom advertisers, which contributed 12% of IPG’s 2023 revenue – down from 15% in 2022 – sharply reduced their ad spend last year. The tech spend slump depressed IPG’s organic growth by 2.5% in the fourth quarter and by 2.2% for the full year.
Though tech marketing spend has stabilized recently, IPG’s not holding its breath. “A return to growth for us in this sector has not been factored into our plan for 2024,” Krakowsky said. In fact, he warned, “we’re carrying a loss that will be felt through most of the year.”
IPG also lost some big client accounts last year, such as Verizon, BMW and Spotify. And digital specialist agencies like Huge, R/GA and MRM, which are more closely tied to the flagging tech space, cost the company about 1.2% of organic growth in 2023 despite multiple waves of cost-cutting layoffs.
These losses offset IPG’s growth in media and PR as well as its strong performance in the health care sector, which represented 29% of the company’s 2023 revenues.
After its poor showing in 2023, IPG forecasts organic growth of between 1% and 2% in 2024.
“We definitely have to get back to things that have been the norm for us for a long time,” Krakowsky said. “This is going to be a year where we can finish some of the transformations that are required to do that.”
The way back
As far as transformations go, a linchpin in IPG’s turnaround strategy is to invest in data and technology, including AI.
IPG is investing around $80 million in AI this year, Krakowsky said. The investment spans software, licenses, AI vendor partnerships with the likes of Amazon, Adobe, Microsoft, Google, Getty and OpenAI and in-house development and training.
That figure pales in comparison to Publicis Groupe’s projected $326 million investment in AI over the next three years and WPP’s planned $317 million annual investment. Still, IPG is using generative AI to conduct research, analyze data, brainstorm creative concepts and activate brand campaigns, Krakowsky said.
The holdco, like its peers in this case, is also consolidating agencies in the name of efficiency.
Last September, IPG combined Kinesso, Reprise and Matterkind into one performance marketing unit under the Kinesso name within IPG Mediabrands. (See also WPP’s creation of VMLY&R from smashing together VML, Y&R and Wunderman Thompson.)
IPG merged the three brands because there was “too much complexity” in the data and media offerings, with “too many places you had to stop along the way to get that kind of work done,” Krakowsky said.
Although the integrated unit performed strongly last year, he said, IPG still has “work to do to activate Acxiom across more of the group.” (Acxiom is the customer data and identity business that IPG acquired in 2018.)
Also in the name of streamlining its operations, in November, Kinesso rolled out an AI assistant chatbot designed to maximize the productivity of IPG Mediabrands employees by helping them manage tasks, like creating meeting agendas.
We few, we efficient few
These moves are part and parcel of IPG’s quest for more efficient processes – and perhaps needing fewer people.
IPG ended 2023 with 57,400 employees, a 1.7% decrease from a year prior, according to EVP and CFO Ellen Johnson. In December, IPG laid off a number of UM and Magna employees, including senior and executive leaders. These layoffs followed others earlier in the year: For instance, in the spring, R/GA cut 15% of its workforce, and in June, Deutsch New York let 20% of its employees go.
Still, when a Wells Fargo investor asked about whether brands shifting spend away from creative into paid media signaled a long-term shakeup for both IPG and the ad industry, Krakowsky defended the value of creative.
“In a fragmented media ecosystem, creative ideas matter a lot,” Krakowsky said. “Clients want both. They’re asking for brand and performance.”
