Publicis Earnings: Data and Technology, and Media Continue To Drive Growth; Increasing Fair Value 2.5%

Publicis’ PUB first-half results clearly demonstrated the benefits of its investments in technology and data analytics capabilities. We think these investments position the firm not only to attract and win new accounts, but also to meet increasing demand of current clients, retain a higher percentage of them, and possibly create a switching cost advantage. As we anticipated, the results indicate that advertisers may raise spending a bit during the second half of this year. We increased our Publicis top- and bottom-line projections slightly, resulting in a 2.5% higher fair value estimate of EUR 79. While the shares of narrow-moat Publicis continue to trade at a discount to our fair value estimate, we recommend a higher margin of safety before investing.

Total first-half net revenue came in at EUR 6.3 billion, up 7.6% from last year with a 7.1% contribution from organic growth and a slight tailwind from acquisitions, partially offset by foreign-exchange headwind. Publicis has diversified its revenue with data and technology, creative, and media each representing about a third of total revenue, and all three areas grew during the first half. Net revenue increased organically in all regions, with the two largest markets—North America and Europe— growing 5.3% and 13.8%, respectively. In North America, media, along with data and technology (Epsilon and Sapient), outperformed creative. Media strengthened throughout Europe and adoption of Publicis’ Epsilon and Sapient offerings continued to increase, while creative remained stable in most of that region. A return to growth in China helped the Asia-Pacific markets recover a bit in the first half (up 1.7%), driven by strength in Sapient, Epsilon, creative, and media. Demand for media remained strong, along with Sapient in the other regions—the Middle East, Africa and Latin America—which grew 11.2% and 6.7%, respectively.