Big Ad Agencies Buck the Weak Revenue Trend

Softening Ad Revenue

A diverse array of companies is being adversely impacted by a slowing advertising market as consumers dial back their spending amid soaring inflation. The trend is showing up on some of these companies’ bottom lines. Technology operations like Facebook parent Meta Platforms (META), and Alphabet (GOOGL) have all cited diminished ad revenues for recent disappointing quarterly results.

Similarly, Warner Bros. Discovery (WBD) blamed slowing ad revenue while making a downward revision to its outlook for 2022 and 2023. Walmart (WMT) executives recently observed that high gas and food prices are causing consumers to cut back on purchases. WPP’s (WPP) ad buying company, GroupM, saw the statement as a red flag indicating more advertisers will be cutting back on spending.

Large Ad Firms Holding Up

While tech, broadcasters, and other companies are seeing their bottom lines impacted by the shrinking ad spend, top global advertising agency networks are bucking the negative trend. The biggest agency holding companies like WPP, Omnicom Group (OMC), and Interpublic Group (IPG) have recently bested their prepandemic growth rates.

These companies have raised revenue growth outlook to 6 to 7 percent, in some cases representing a 33% increase. The revision is notable given it reverses an earlier trend of platforms such as Google and Facebook gaining market share at their expense.

All Eyes on the Consumer

Market observers contend the shift reflects demand for “digital transformation work” that came out of the pandemic. The term refers to companies’ online operations including ecommerce. In addition, global companies are turning to big players in the space because it can be more efficient to work with just one firm. The sheer size of these companies allows them to achieve scale and provide numerous disparate services at a time.

All companies that count on ad revenue to support their bottom lines will be watching consumer behavior. Spending patterns will drive marketers’ motivation, and ultimately determine the size of the ad dollar pie.

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