IPG Earnings: IPG Awaits Higher Spending by Tech Clients, but More Agency Integration Is Required

IPG again missed expectations during the third quarter and lowered its growth guidance for the year, lagging its major rivals. Publicis and Omnicom posted solid organic growth, while Publicis increased its full-year net revenue outlook. IPG’s net revenue declined organically from last year, as the firm’s tech and telecom clients have been cutting spending. The firm’s exposure to those industries is greater than those of Publicis and Omnicom but less than WPP. IPG also lacks seamless integration of its creative offerings with media and data and has had to improve its media buying, which requires some changes to its trading model, both contributing to its weak quarter.

We expect these issues to be resolved by the end of the year or in 2024. In our view, tech and telecom ad spending should improve into 2024, benefiting the entire advertising industry. We also think that IPG must more aggressively combine its creativity with digital and data analytics, which include artificial intelligence capabilities, like WPP’s latest move with VMLY&R and Wunderman Thompson. There were some indications from management that the firm is moving in this direction. Finally, it appears that the firm’s model adjustments in media buying may have resolved given its recent sizable General Mills account win.

While we have slightly reduced our projections, we are maintaining our $36 fair value estimate on IPG. After trading in 3-star territory for most of this year, IPG shares have become attractive again. We expect the firm will return to organic growth over the next year after what appears will be a full-year net revenue decline in 2023.

Total net revenue of $2.3 billion was up 0.6% year over year as an organic decline of 0.4% was offset by 0.3% and 0.7% benefits from acquisitions and currency exchange movements, respectively.