First Q1 numbers suggest adland’s giants are dodging hit from rough economy (for now)

The earnings results, released on Wednesday and Thursday this week, showed organic revenues at both firms rising – in Publicis’ case, above expectations.

Worldwide organic growth at Publicis Groupe was 7.1%, 5.8% in the US and 12.3% in Europe. Chief exec Arthur Sadoun said that the results meant the group would achieve the higher estimates of its revenue guidance, issued earlier this year to investors.

“Actually, despite an increasingly challenging macroeconomic environment, we now anticipate that organic growth for the year will come in at the top half of our 3-5% guidance while delivering 17.5% to 18% operating margin,” he said.

At Omnicom, organic growth was slightly lower – 5.2% – with the same figure for the UK, EMEA and US regions hovering around the 5% mark. Group boss John Wren said that ”despite many macroeconomic, technological and social factors facing our clients, Omnicom is guiding the world's top companies and their brands to continued growth with highly-specialized marketing and communications services.”

Though Omnicom’s top team will be dismayed to have fallen behind Publicis in terms of absolute revenue (the French holding company’s most recent figures showed it pulled ahead over the last financial year, to become the second-largest legacy agency group), those numbers were broadly in line with the expectations it set out earlier this year.

They also broadly track with the latest IPA Bellwether figures, released yesterday morning. The industry group’s quarterly marketing investment survey found that 36.6% of marketers in the UK expect their spend to rise in real terms this year.

A WARC survey published in November reported that 95% of marketers were bracing for some kind of recession. But almost six months on, the Bellwether found British respondents much more optimistic about the chance of a proper downturn.

Forrester principal analyst Jay Pattisall tells The Drum that “Publicis Groupe’s 7% organic growth for Q1 ’23 is strong growth given the entire industry’s blockbuster performance in 2022. When taken in context with Omnicom’s 5% organic growth for Q1, this shows the advertising sector is yet to feel the headwinds of economic uncertainty globally, with North America and Europe driving the most growth. But with headwinds building in the banking industry and challenges in the technology sector, it is not likely this trend maintains through 2023.“

It takes time for changing consumer behaviors to show up on the balance sheets of consumer brands, and for those brands to reduce marketing budgets. So the impact upon agencies was always going to be delayed by a few months. But given the winter’s doom-stricken headlines, it’s surprising that both firms have swerved the impact of high inflation, high-interest rates, a cost of living crisis and the specter of a recession upon their bottom lines.

Lucinda Peniston-Baines, co-founder of marketing consultancy Observatory International, says that “the fact that holding companies appear to continue to deliver well is, we suspect, due to their increasing ability to scale the demand for tech and content across elements of their business.

“This focus on data and therefore tech-dependent marketing reflects where spends are shifting to as an overall trend but crucially, at the moment, in order to achieve short-term results in an increasingly difficult and uncertain financial environment.”

For his own part, Sadoun credited much of Publicis growth to Epsilon and Sapient, its data and tech services companies, and the value they’ve added to its creative and media businesses. The client spend that flows through those companies is associated with e-commerce and digital transformation efforts, rather than campaigns or irregular project-based work, making those businesses more resilient to economic knocks and dints than the group’s traditional agency properties.

“Sapient’s strong performance in the US and EMEA reflect the continued investments in digital transformation,“ explains Pattisall. “DT budgets often sit outside of the marketing and are governed by tech c-suite leaders who are less affected by cuts in marketing and paid media budgets. In fact, some benefit from marketing budget cuts. Publicis’ technology investments for Sapient, Epsilon, Citrus Ads and Profitero have well-positioned the holding company for digital transformation, commerce and retail media growth. And Q1 demonstrates this.“

According to Brian Wieser, principal at strategic advisory firm Madison and Wall, the odds are still in the favor of established industry groups – even as tightening consumer spending habits threaten marketers’ budgets.

“Generally, I think that agencies have been benefiting from the complexity of marketing at the present time. It’s harder for marketers to know how to accomplish their goals in a world with more ways to accomplish those goals, especially when many approaches require sophisticated knowledge. Inflation is helpful, as marketers generate more revenue and have bigger budgets in nominal terms.

”Scarce labor probably contributes, too, as a marketer who might want to do something themselves may find that they are unable to. Agencies may have difficulty attracting talent as well, but it’s easier to find a way to find the people to do the work required to support a marketing campaign when you have 100,000 staff focused on marketing activities rather than 100.”

He says Sapient’s performance has come at the right time for Publicis. “Publicis in particular is benefiting from a rebounding Sapient, which has been doing very well after a few years of struggle. Finally, both Publicis and Omnicom have been developing their proprietary media trading solutions, and those are undoubtedly growing well.”

Peniston-Baines suggests the WARC warnings are still worth bearing in mind, however. “Lift the hood and you may find that parts of holding companies are doing splendidly – but other parts serving more ‘traditional’ channels are suffering,” she says.

“The Bellwether report may be painting a positive picture – but this may be because there has been a significant increase in spend since October across Europe. Importantly though, WARC’s Global Marketers Index paints a far less positive picture overall, with spends in all markets globally (including Europe) continuing in overall decline.”