Shares of Interpublic Group of Companies Inc. (IPG) have taken a nosedive recently, causing concern in the advertising and marketing industry. The company fell short of second-quarter revenue expectations and lowered its full-year growth outlook by half. This setback is largely due to weakness in the technology sector.
Just a couple of days earlier, Omnicom Group Inc.’s stock also experienced a significant drop after missing revenue projections and providing a cautious outlook. Both agencies have noticed a decrease in spending from their tech-sector clients.
Interestingly, this decline comes at a time when the technology industry has been thriving in the S&P 500. The Technology Select Sector SPDR exchange-traded fund has seen a remarkable 42.3% increase year-to-date, while the overall S&P 500 index has grown by 18.5%.
Interpublic’s CEO, Philippe Krakowsky, acknowledged the challenges faced by the tech sector, including substantial cost and workforce reductions. This distressing period has placed immense pressure on the industry.
It is evident that the technology sector’s struggles are having a ripple effect on advertising and marketing agencies. The full impact of these difficulties remains to be seen, but it is clear that the industry is currently in a state of flux.
Pressure on Interpublic from Large Companies
In the tech industry, Interpublic has been facing pressure not from smaller tech companies or those backed by venture capitalists, but rather from a relatively small group of large companies. Despite a modestly more uncertain macroeconomic environment, there are no signs that this pressure is abating.
Interpublic recently reported second-quarter net income of $265.5 million, or 68 cents a share, compared to $229.6 million, or 58 cents a share, in the same period last year. Adjusted earnings per share of 74 cents surpassed the FactSet consensus of 61 cents, but revenue fell 2.5% to $2.67 billion, below the FactSet consensus of $2.39 billion.
Looking ahead to 2023, Interpublic has revised its organic growth guidance range to 1% to 2%, down from the previous range of 2% to 4%.
Analysts, such as Steven Cahall from Wells Fargo, view these disappointing earnings reports as a worrisome sign for ad agencies. There are concerns of a potential “derating” of the stocks in the near future. Cahall emphasizes that it doesn’t feel like a soft landing for these companies.
Year-to-date, Interpublic’s stock has seen a modest increase of 0.1%, while Omnicom shares have slightly risen by 2.9%. In comparison, the S&P 500 has experienced a gain of 18.5%.
