It’s been a very solid first quarter for the big marcoms holding companies, as figures published to date have shown that most are trading either in line with or ahead of expectations.
The Q1 Dentsu results will follow later this month, with the company having been hugely acquisitive and shown strong growth throughout 2015, it seems safe to expect these to be equally positive.
IPG led with 6.7% revenue growth in the past quarter (perhaps focusing on organic growth compared to the other major holding companies as it has not made as many acquisitions over the past 12 months), followed by 5.1% at WPP, 3.8% at Omnicom and 2.9% at Publicis.
The groups’ growth forecasts for 2016 as a whole are around the 3% level. Notable exceptions are WPP, which is looking at "well over 3%" (despite the number of political and economic uncertainties at the moment), and also Publicis.
The latter is predicting lower overall growth than it saw in Q1. Its 2.9% revenue growth in January to March was well above the consensus guidance of 0.3% offered at the outset of the year. However, this was predicated by the fact it had come out of a spate of media reviews in which it had lost some major accounts.
That said, there is always a second half bias and group leaders are keen to manage expectations. But on the flip side, 2016 is a maxi quadrennial year with significant boosts from the Olympics, the European Football Championship and the US presidential election. There’s little reason to expect groups slipping below forecasts this year.
The results also highlighted the importance of the Western and Asia Pacific marcoms markets – particularly in light of economic concerns over markets such as China, Russia and Brazil. The US and UK were key to growth for WPP, as China slowed down in Q1 and saw only 0.4% organic revenue growth.
2016 is a maxi quadrennial year with significant boosts from the Olympics, the European Football Championship and the US presidential election.
And although it was still growing on a revenue basis, its net sales growth was minus 1.7%, which is perhaps a better indicator. Activity in Brazil and Russia also saw declines in Q1, although it’s worth noting WPP remains bullish, and highly vocal, on the longer term prospects for these markets.
IPG was strong in the domestic US market and Latin America, although Omnicom and Publicis struggled in LATAM.
Q1 also demonstrated how integral digital growth has become to the networks. WPP’s advertising and media investment management growth was strong, but more than 37% of its revenues came from digital and this part of the business is growing at 8.3%. Similarly, 55% of Publicis’ revenues are now classified as digital, though this is skewed compared to the other holding companies because of the Sapient acquisition. Nonetheless, its digital revenues saw 7.6% growth in the first quarter.
And they’re far from the only ones getting involved in digital acquisitions; technology and consultancy businesses are becoming increasingly competitive. Ad Age recently named Accenture Interactive, part of Accenture Digital, as the largest and fastest-growing digital agency network in the US and worldwide. The overlap between marketing communications and consulting businesses is growing fast and this will bring fresh challenges to the incumbents.
Aside from the competition in the digital space from tech and consultancy businesses, there are other challenges emerging to the traditional agency holding company structure.
The overlap between marketing communications and consulting businesses is growing fast and this will bring fresh challenges to the incumbents.
We’re seeing new entrants such as You & Mr Jones, a new brand technology group led by former Havas CEO David Jones, which has a big acquisition budget and an aspiration to build an alternative model.
Meanwhile BlueFocus from China has completed some landmark deals in recent years, such as We Are Social and Vision 7, and plans to grow its digital revenues and expand overseas. Hakuhodo from Japan also recently created Kyu, described as a ‘collective of core brands globally’ built largely through acquisition.
All in all, the holding companies are having to raise their game to deal with new entrants both from outside marcoms and from new players offering a different approach. The Q1 results suggest that so far, at least, they’re up to the challenge.