What's going on?
While the Mad Men era may be over, some advertisers are still doing pretty well: the world’s biggest advertising firm, WPP, saw its stock hit an all-time high on Wednesday as it reported first half financial results that were better than research analysts expected.
What does this mean?
WPP is an umbrella group that owns many advertising agencies such as Ogilvy and JWT (it also still spends hundreds of millions of dollars buying up small agencies each year). Advertisers use a metric called “comparable net sales” to measure their sales growth: WPP’s climbed more than 4%, which was at the top of its class (i.e. better than peers Omnicom and Publicis). WPP’s stock price also benefited from being a UK listed company, as it’s denominated in pounds but the company’s income is primarily in dollars. So, when the pound weakens (as it sharply has in the wake of the Brexit vote), WPP’s profit is higher in pound terms and its stock rises in response (all else being equal).
Why should I care?
The bigger picture: Advertising is another industry at risk of “disruption.”
As digital advertising becomes more popular, traditional advertising methods are being challenged (e.g. big TV ad campaigns). One of WPP’s strategic priorities is to invest heavily in technology (e.g. programmatic ad buying and measuring advertising engagement levels). While there’s still a role for Don Draper-type creatives (boorish behaviour aside), advertising, like many industries, is becoming very tech heavy.
For the stocks: It’s been a fruitful year for advertisers – next year looks to be more arduous.
The Euro soccer (a.k.a. football) championships, the Olympics and the upcoming US presidential election are all big 2016 advertising events – and WPP (along with other agencies) benefits from the overall increase in advertising spending. 2017 doesn’t have quite the same line-up of major events planned, so it’ll be tougher for WPP and its peers to grow their sales.