3 reasons why Publicis is outperforming holding company rivals
The French agency group revised its revenue predictions upwards again, as boss Arthur Sadoun hailed media performance in the third quarter. We look at how it’s managed to buck industry trends.
Publicis Groupe released its results for the third quarter of 2023 / The Drum
Publicis Groupe expects to bring in more revenue than it did at the beginning of the financial year, despite macroeconomic pressures that have dampened advertising activity and hurt the businesses of its international competitors.
The Paris-based holding company, which owns agencies such as Saatchi & Saatchi, Starcom and Publicis Sapient, revised revenue predictions for the year from 5% to 5.5%-6% and its operating margin for the same period to 18%. Group organic growth for the third quarter was 5.3% worldwide; the firm recorded 3% organic growth in North America, 3.8% in Asia Pacific and 10.7% in Europe.
The move stands in contrast to competitor IPG and WPP, which both downgraded their growth forecasts over the summer. The former is due to due to release its third-quarter earnings next week. Executives at both firms pointed to industry-wide pressures that caused clients to delay spending – so why has Publicis managed to buck the trend?
”Publicis Groupe’s 5.3% organic growth is reflective of pre-pandemic growth rates for agencies overall,” says Forrester’s Jay Pattisall. ”But in the context of cuts to marketing budgets and programs, single-digit growth is expected and Publicis’ results are likely to be the bright spot for agency earnings in Q3.”
Chief executive officer Arthur Sadoun was quick to highlight the role its data company Epsilon has played in this quarter’s performance. It was acquired in 2019 and has since become the linchpin of the group’s approach to first-party data management demand. The business recorded organic growth of 10.5% in the quarter.
It’s also central to Publicis’ ambitions in retail media, a booming sector expected to grow 9.9% to reach $125.7bn in 2023. A report from WPP’s GroupM predicts it will surpass television revenue in 2028 and represent 15.4% of total ad revenue.
Publicis is already taking advantage of this shift in spending. A case in point is Unlimitail, a joint retail media network venture launched with French supermarket Carrefour in order to target consumers in Europe, Brazil and Argentina. CitrusAd and Epsilon power it. Sadoun told investors that when the group made the deal four years ago, it couldn’t have anticipated “just how strategic” the agency would prove to the overall business. This year, Publicis has moved to boost Epsilon’s edge further by merging London-based Yieldify into the firm, adding its personalization, conversion optimization and customer journey capabilities into its PeopleCloud offering.
Together with consulting and transformation business Publicis Sapient, Epsilon accounts for around a third of all Publicis revenue. For Hélène Coumes, equity research analyst at Alphavalue, the company was key to Publicis’ success this quarter.
“Media and Epsilon drove organic net revenue growth during this quarter,“ she tells The Drum. “More generally, Publicis’ outperformance v its peers is attributable to the mix of activities, new business wins (in particular in media) in the last years, the synergy between media and Epsilon around first-party data specialization, and the group’s organization (its collaborative platform Marcel, [and its] nearshore/offshore headcount) enabling efficiency and competitiveness. “
Booming media business
Publicis’ media business has also remained strong. Sadoun said: “Our media capabilities continued to gain market share… and were the main drivers of this performance.”
Greg Paull, co-founder and principal at R3: “The results reflect the strong ground the group has made on the ’Power of One’ approach as well as in media in the US, where it clearly leads the market.“
Agencies such as Zenith and Starcom lifted group performance in lower-revenue regions, such as central and eastern Europe and Latin America, while underpinning growth in France, the UK and the US. The latter was driven by a slew of new clients brought on board, including Rite-Aid, Walgreens, LVMH, TGI Fridays and National Life Insurance.
Beyond North America, it also picked up L’Oréal, white goods maker Bosch, clothes retailer Asos and confectioner Ferrero in the last three months.
According to Pattisall: ”Publicis Groupe’s performance is driven by Publicis Media, particularly its successful new business last year with Mondelez, Nestle and this year with LVMH, Pfizer. Epsilon and the Epsilon ID are fundamental to Publicis Media’s ability to activate. So, it’s often a case where one succeeds, both succeed.”
Limited exposure to tech slowdown
Publicis hasn’t been immune from the pressures facing the ad industry. Client spending among technology clients remained sluggish, and growth from ‘TMT’ – technology, media and telecom clients – was -3% in the third quarter. Sadoun said that delays in client spending in the US created a “tough environment” but noted that its Sapient business had still recorded organic growth of 1.2%.
“Sapient nonetheless continued to grow, and creative confirmed its resilience once again in spite of industry-wide cuts to classic advertising activities,” the chief executive said.
Still, the holding company doesn’t draw as much income from that sector as competitors in the US and UK. Tech, media and telecoms combined accounted for 24% of WPP’s revenue in the first half of the year but just 12% of Publicis’ in the same period. So, it’s not been as severely exposed to fluctuating ad spending from clients in that area.
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Sadoun fielded a few queries on how Publicis aims to utilize AI, and what role it might play in the company’s fortunes next year (though he declined to make commercial predictions).
Pattisall says the focus was instructive. “I find Arthur Sadoun’s comments about the role of AI as notable,“ he says. “Agencies’ ability to master and navigate the AI era will determine their fate in 2024. At this point I find Publicis’ strategy for AI somewhat murky. I’m aware of enterprise partnerships with AI providers and Epsilon and Sapients use of machine learning. But the enterprise approach to bring AI across all of Publicis is not yet clear. So their AI strategy and product roadmap raises questions about their creative agencies, DEG and Publicis Media’s ability to capture their share of an expected content boom (based upon generative AI) in 2024.
“It’s not the Publicis has no strategy or AI capabilities – quite the contrary – Epsilon and Marcel show strong use cases. But compared to that of WPP or Omnicom, their enterprise approach, products and scaled partnerships are somewhat, less clear.“
Paull suggested that Marcel would, in time, help sharpen the group’s edge. He says: “It’s impressive that Marcel has gone from a running joke to a platform for extended AI initiatives. Publicis is ahead of the curve on that, and with the power of an Epsilon in the background, it should be a compelling proposition.“