Omnicom: Account Wins and the One-Stop-Shop Difference Will Drive More Growth in 2024

Narrow-moat Omnicom’s OMC third-quarter results demonstrate the firm’s continuing success in interagency collaboration across agency brands, which has made Omnicom a one-stop-shop ad-holding firm and helped it win a few notable accounts. We think the account wins, along with successfully retaining many current accounts and the ad spending growth that we foresee next year will result in Omnicom exceeding our initial 2024 revenue increase projection. We adjusted our model accordingly, resulting in a $98 fair value estimate, up from $95. We view the shares, which are trading at a 21% discount to our fair value estimate, as attractive. Overall, the third-quarter results of Omnicom and Publicis (which reported last week) support our assumption that the advertising space still has room for growth this year and in 2024.

Omnicom reported total third-quarter revenue of $3.58 billion, up 3.9% year over year, driven by organic growth (3.3%) and some foreign exchange tailwinds, partially offset by a decline due to net dispositions. Advertising and media revenue increased 6.1% organically, driven mainly by media buying. We still expect growth in creativity to strengthen in 2024 given the ongoing demand for brand consulting. On that front, commerce and branding revenue declined 1.7% organically, mainly due to less activity on the retail marketing side. As we assumed and mentioned in our previous Omnicom note, precision marketing growth accelerated to 4.3% from the previous quarter’s 2.3%, which we think is mainly due to the clients’ strong interest in generative artificial intelligence, reigniting demand for ad-holding firms’ digital transformation consulting services. The events-based experiential revenue increased 9.2% organically, with weakness in the U.S. and Middle East and Africa more than offset by strengths in Asia and Europe. Due to lack of national elections in the U.S., public relations revenue declined 5.5%.