Stagwell has now cut 500 jobs in 6 months since tech clients stopped spending

Penn says that the market has reached “the bottom of the cycle of cautiousness” and that client spending, and the firm’s turnover, will pick up over the next six months. But the agency group, which owns Forsman & Bodenfors and 72andSunny, continued to cut jobs throughout the second quarter of the year, primarily in the US.

Penn declined to say precisely how many positions had been eliminated across the company since the beginning of the financial year because the cuts also included freelancers and contractors, but said it was equivalent to 4% of its overall workforce. That’s approximately 520 jobs, given that Stagwell had over 13,000 employees at the end of last year. Chief financial officer Frank Lanuto told investors the cuts had yielded around $28m in savings so far this year.

Speaking to The Drum, Penn says that the company had not paused recruitment, despite close attention to staff costs. “It’s not a hiring freeze. We are continuing to shift people from areas of lower demand to areas of higher demand. It’s a balance between some client slowdowns and new business wins and some tech products we’re building.”

He says that the company had found itself “overstaffed” once clients cut back on spending earlier this year. Like other agency groups, Stagwell’s revenues struggled once large US tech firms began to cut marketing investments. “A lot of tech companies had mass layoffs… and that tended to have a lot of disruption. Those tech companies pulled back or reduced some of the projects they were doing.”

Stagwell adjusted its predictions for organic net revenue growth over the course of 2023 to 0%-2%, following similar moves from IPG and WPP in recent weeks.

Stagwell’s revenue from retail clients also declined, falling 29% in the last quarter – a significantly larger fall than that seen at rival agency groups. Penn said the reduction was the result of a handful of large clients altering their spending.

Meanwhile revenues at Stagwell’s research business, which is the largest conductor of audience testing for the US film industry, also fell. Penn says the Sag-Aftra and WGA strikes had halted the usual Hollywood pipeline. “If Hollywood’s not creating content, we don’t have anything to test.”

He argues that client demand – particularly for digital transformation work – will begin to rise again, provoked by the advent of generative AI tech.

“We believe we’re at the end, the bottom of the cycle of cautiousness. People think they have to get out there. You don’t want to be passed by with new technologies. And after all, we’re not in the recession that everyone expected and planned for. The tech companies are coming, they have shown better earnings. I think the Fed is at the end of its cycle of tightening. I think the writer’s strike is probably going to end.

“There will be new business transformation work. Just as every client originally needed websites and then every client needed a mobile app, now they’re going to need generative AI experiences. That will create a large layer of work”

In the short term, Penn says Stagwell is incorporating generative AI into its service offering in its consumer research business. “We don’t think it’s a final draft. But in terms of focus group analysis, it’s going to be a tremendous help; you could get an analysis done 10 minutes after a session. It’s going to be really helpful in pointing analysts toward statistically significant changes in tables. It won’t be the final word in analysis but it’s going to be super helpful.”

The company recently struck an affiliate deal with Brazilian firm Qintess. The agreement allows Stagwell to expand its footprint in Latin America, Penn says, without having to acquire a business in Brazil – although he adds that the group considers the region a prime target for M&A activity. “We’re looking at some substantial transactions there that we hope will come through in the next six months.”