What's going on?
The world’s third-largest advertising agency, Publicis, lowered its 2019 sales forecast on Friday for the second time in three months – and investors lowered its share price by 14%.
What does this mean?
Publicis flagged that “organic” sales growth, which excludes the effects of currency swings and acquisitions, fell almost 3% last quarter compared to a year ago – worse than either investors or the company itself had expected. That was partly down to US customers unexpectedly slashing their spending on “traditional” TV and billboard ads over the summer. As a result, French-headquartered Publicis now thinks its overall 2019 revenue will be 2.5% lower than 2018’s. Only three short months ago, it was confidently broadcasting a sales growth forecast of 1%…
Why should I care?
The bigger picture: Ads are becoming #ads.
The internet hasn’t just altered the advertising landscape – it’s eviscerated it. Digital marketing is growing fast, and most of the cash and control it generates plops straight into the palms of Google, Amazon, and Facebook. Traditional ad agencies like Publicis are desperately trying to adapt to a world where clients are more interested in search results and social feeds than milk cartons and magazines. And none too soon either: 2019 is expected to be the first year in which US digital ad spending outweighs offline marketing.
For markets: Timing the turnaround.
Publicis’s April announcement that it was buying North American data marketing company Epsilon is part of an ongoing push to become more data-focused. Still, wary investors may worry that the French firm’s earnings will continue to disappoint if its older ad business shrinks faster than new digital segments replace it. Such issues are also bedeviling Publicis rival WPP, the world’s largest ad agency. Investors likely expect WPP to report similar trends in its earnings next week: the company’s share price fell 4% on Friday.