If you believe, as I have argued, that ad agency revenues are an indicator of how major companies feel about the economy now and in the short-term future, then these charts -- all pulled from ad agency holding company investor presentations -- will furrow your brow. The assumption here is that advertising clients increase their adspend via agencies now because they expect it to generate greater sales in the near future. If advertisers are worried about a contracting economy (and contracting sales) then the easiest thing for them to do is curtail their ad budgets -- and that shows up soonest in ad agency revenue numbers.
First, let's look at WPP (WPPGY), the world's largest ad agency company. Its clients include major packaged goods, automobile and consumer companies worldwide, and therefore it functions as a good proxy for the state of the global economy. Here are its recent organic revenue growth rates:
As long as those lines stay above 0 percent WPP is still growing, even if they're pointed downward. But the fact that they're pointing downward after just five quarters of growth is depressing news. The line for Western Europe is barely showing any growth at all.
Of course, 2009 was a terrible year, and growth rates in 2010 benefited from easy comparables. Those easy numbers are mostly behind us now, so it is to be expected that the 10 percent revenue rises of 2010 are replaced by something more moderate for 2011.
Nonetheless, Omnicom (OMC) -- the second biggest ad agency holder -- was only able to eke out 2.1 percent revenue growth in all of Europe in Q1, a region where it has a tiny revenue base of half a billion dollars per quarter:
Now here's the Interpublic (IPG) slide that, during the recession, I christened "the PowerPoint From Hell" because of its terrifying downward curves:
It's looking rather rosy, yes? But ask yourself how long you think IPG can keep up 9.7 percent revenue growth. And compare that growth to the boom years of 2005 through 2008 -- 2010 and 2011 look like aberrations, not the norm.
What about the future? Here's Publicis (PUB)'s guidance:
The key thing to compare is the "Forecast 2011" column for April 2011 and December 2010. Publicis has scaled back its growth expectations globally and in five of the nine regions in which it operates. A big part of that is Japan, of course, but Publicis also shaved a point and a half of China's growth.
So, just to restate: Slowing growth is to be expected but it's going to be here sooner than you think. If you were still waiting for the economy to take off, you may have already missed it.
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