Global advertising group IPG, like its competitors, has seen growth return to, and pass, the pre-pandemic levels of 2019.
The surge in business comes as the economy opens a relief value to cope with pent up demand.
But how long can the growth continue?
All the major advertising groups to have reported December quarter results are forecasting growth ahead, but at a reduced rate
IPG’s organic growth over the full year to December was 11.9%. In the December quarter, organic revenue growth was 11.7% compared to the same three months in 2020. Compared to the same quarter in pre pandemic 2019, the increase was 5.7%.
Now IPG is looking at 5% growth in 2022.
CEO Philippe Krakowsky on the advertising market: “I would characterise the environment overall as healthy.”
He told a briefing of market analysts: “Clients, clearly, for a host of reasons, want to/need to and understand the value of being active in the marketplace. And I think that's across a broad range of channels, although the focus is clearly on deepening relationships with consumers.”
The highest area of demand is for services and capabilities with a greater digital component and data-driven component, says Krakowsky.
“But there's still a strong need for thinking and for work that's going to bring brands to life in mass media,” he says.
He points to the 2022 Super Bowl where IPG clients are making news o9n a highly effective platform.
The other area of demand is integrated campaigns, to land and articulate an idea across a full range of touch points.
“When a marketer is launching a new product, looking to differentiate their service, they see the value,” he says
Experiential and events are also returning after dropping around 85% in 2019. “I think that what's positive there is that we're clearly not going to see lockdowns. The lingering effects of COVID seem to be kind of normalising.”
A slide from IPG's market analyst brefing:
He says there’s definitely a broader recovery going on.
“But I think there's also a shift to an understanding that you can – and that you have to have a voice in the marketplace given the complexity of what's going on, the speed of what's going on … clients … need to drive their story, their franchise forward.”
The strongest areas of growth include media, data tech and health care.
“We're confident that the continuing strength of our offerings has us well positioned in an environment of dynamic change for media and marketing, which is coupled with a solid global macroeconomic environment.
“Of course, we are aware in the year ahead of uncertainties and challenges from COVID to inflation and geopolitical risk.
“Yet as we look ahead, we anticipate that 2022 will be another year of strong growth, on top of multi-year industry-leading comparables. As such, we are targeting full year organic revenue growth of 5% in 2022.
“And with that level of growth, we expect that, in 2022, we will consolidate the very significant gains achieved in adjusted EBITDA margin over the past 24 months at a level of approximately 16.6%.”
Of course, with increased revenue comes rising costs. Salaries are in the frame.
Krakowsky: “In light of the current environment, our outlook also includes a modest inflationary impact on our investment in employee compensation this year, which we're actively managing to support our strong growth. This is consistent with what I believe we're all seeing reported across a broad range of industries.”
But the costs taken out of the business during the depths of the pandemic are returning dividends.
IPG cut 1,500 roles globally and reduced its real estate footprint by 15%.
In the 20212 December quarter, total salaries and related expenses as a percentage of net revenue was 62.2% compared with 58.9% in 2020's fourth quarter (when temporary pay reductions were still in place for some senior teams).
Krakowsky: “We anticipate that our expense for employee performance-based incentives will retrace and fall within a more normalised range consistent with our longer-term history.
“We also expect to continue to see the structural benefits of our 2020 cost actions, most of which we saw in 2021 and which will continue to be evident going forward.”
A slide from the IPG briefing of market analysts:
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