Ad Agencies Can Expect A Bumpier Ride Than During 2008-09 Recession, But Clients Will Still Come Calling – Report

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Without live sports or active production due to COVID-19, U.S. television advertisers are leading a dramatic retreat from all marketing platforms, with the effects on several stakeholders likely to linger into 2021.

Ad agencies have been absorbing the shock for more than a month now, and a new report from Wall Street research firm MoffettNathanson warns, “This will get bumpy.” Analyst Michael Nathanson, delivering 20% to 30% reductions in earnings estimates for Omnicom, WPP and Interpublic, says their flexible business models will enable them to weather the storm. The pain, though, will be more intense than the 2008-09 recession.

“This time will be worse,” Nathanson predicts. “We are projecting agency organic growth to be negativefor the rest of the year, and only expect a return to trend growth in 2021 with a more gradual ‘U-shaped’ recovery in ad spending. While we expect the agencies to blunt some of the damage
from these revenue cuts through cost management efforts, we still anticipate margins to erode.”

Interpublic will report its quarterly earnings on Wednesday morning. Despite significantly lowering financial estimates, MoffettNathanson retained its ratings on the shares of WPP (neutral), Interpublic (neutral) and Omnicom (sell).

Nathanson’s report followed an updated forecast from research firm eMarketer on Monday, which predicted that TV advertising will plunge between 22.3% and 29.3% in the first half of 2020. The total haul will be $23.95 billion and $26.30 billion for the first six months of the year. That projects to less than $60 billion for the year, a $12 billion shortfall from the firm’s initial outlook for 2020, released on March 6.

Nathanson does see agencies as better-positioned than media companies or social media concerns as the virus ad and economic meltdown unfolds. As to whether the downturn would possibly cause clients to cut ties with agencies, the analyst believes clients will still be able to save more money with agency affiliation compared with shouldering costs in-house.

“Especially given a dynamically changing marketplace, with the rise of OTT TV offerings, new digital ad platforms like Amazon, and changing regulations around consumer privacy and data, it may in fact be more efficient to outsource marketing functions to agencies especially if they are not core competencies for the client,” Nathanson wrote. “We do not anticipate clients will be itching to set up their own in-house teams and add more fixed costs to their operating models given the downturn this time around, so do not expect the crisis will accelerate the shift in spending away from the agencies.”

This article was printed from https://deadline.com/2020/04/ad-agencies-interpublic-wpp-omnicom-covid-19-recession-1202913929/