The world’s largest advertising agency holding group WPP reported its Q3 earnings on Monday. Growth was strong, with like-for-like net sales up 3.3%, but the company said it is “characteristically cautious” about its outlooks for the rest of the year as clients remain risk-averse.
This chart from WPP’s presentation to analysts and investors explained all the reasons why WPP is right to be cautious, and some of the reasons why it has reason to feel optimistic about certain segments of the market — and they apply to the entire advertising sector (you can click on the picture to maximise the image.)
The “media tsunami”
Many of the questions asked by analysts at the WPP earnings presentation referenced what the trade press has come to call “Mediapalooza”: The unprecedented wave this year of brands holding media agency reviews. Some $US25 billion of advertising spend has been put up for grabs this year.
WPP refers to it in the chart above — the second bullet point in the “micro” section — and, in the presentation, called it the “media tsunami.”
Media agency reviews let brands reassess their ad spending, often by offering those contracts out in a competitive bidding process. The reviews result in an often lengthy pitching process, as agencies look to prove to marketers that they can provide the best value for their advertising spend.
Questions about Mediapalooza were also raised during the earnings calls last week of WPP’s rivals — such as Publicis Groupe, Omnicom, and Havas.
WPP displayed four slides on the subject — two on its number of account wins in Q3, one on its number of losses, its internal estimates of net new business wins, and a slide on its major wins and losses since October 1.
The numbers suggest that overall, including the accounts awarded since October 1, WPP has picked up more in major new business (around $US3.6 billion) than it has lost (around $US2.3 billion.)
WPP CEO Sir Martin Sorrell said the direct impact of the reviews will probably not be felt until early next year or later — not least because many big contracts, such as those of P&G North America and Unilever, have yet to be awarded.
He added that WPP’s emphasis on tech, the application of technology, and content has been rewarded by those marketers who have chosen to switch to or stick with the company’s agencies. Meanwhile, he suggested that clients more focused on cutting costs than getting value from their agencies may be disappointed further down the line.
Sorrell said: “I would say — without being specific, because it’s wrong for me to be — we do see some very extravagant claims being made on media pricing … there have been a couple of instances just recently where the pricing has been inane. Either guaranteed or indicated has been inane. It’s highly competitive.”
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