The advertising industry has faced significant challenges in the last few years. As the COVID-19 pandemic disrupted economic activity and consumer behavior worldwide, marketing budgets were among the first items to be cut. 

This had a profound impact on advertising holding groups that derive the majority of their revenues from client spending.

Interpublic Group (IPG), one of the ‘Big Four’ global advertising conglomerates along with Omnicom, WPP, and Publicis, also struggled amid the downturn. 

In 2020, Interpublic’s revenue declined and organic growth turned negative as clients paused projects and delayed spending decisions in the uncertain environment.

The challenges persisted in 2021 as well. While revenue rose on a reported basis, organic growth was still negative. 

However, 2022 has brought signs of a turnaround. As Covid restrictions eased and economic activity normalized gradually, marketing budgets started opening up again.

Right now, the market is cautious about Interpublic’s future. This is reflected in its Uniform P/E ratio of 13x, which is far lower than the corporate average.

The market seems to be betting that the company will perform worse than its pre-pandemic days. However, recent developments might suggest otherwise.

Interpublic’s latest earnings call painted a picture of a company holding steady in tough times.

The company reported 1.7% organic growth for the quarter, bringing the first half of the year to 1.5% growth. This growth was driven by strong performances in Europe, Latin America, and the UK, particularly in sectors like healthcare and consumer goods.

Furthermore, it has been evolving from a traditional advertising agency into a company offering a full range of marketing solutions. 

A key part of this transformation was the acquisition of Acxiom in 2018, which significantly boosted Interpublic’s data-driven marketing capabilities. This move has helped improve margins and strengthen client services.

In addition to data, the company is embracing new technologies like generative AI. Collaborations with companies like Adobe (ADBE) and Google (GOOGL) are helping Interpublic integrate AI into its services, which could enhance its ability to deliver personalized and effective marketing campaigns.

The macro trends are also improving for the company. The Fed has signaled it will likely cut interest rates in September to combat high inflation and slow economic growth.

Lower rates are expected to boost consumer spending power and confidence over time. If rate cuts are delivered as anticipated, the advertising industry could see spending pick up, which will benefit Interpublic.

Finally, with the elections coming up, the political advertising market is expected to see significant spending over the next few months.

Political work has higher margins than many commercial industries and can help drive revenue and profits when facing headwinds elsewhere. 

Interpublic has a proven track record of success in previous election cycles, and McCann’s strong positioning indicates the upcoming midterms could provide a notable boost.

While the advertising industry is facing some headwinds, Interpublic is showing that it can adapt and thrive through strategic moves and a more favorable economic outlook.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

This analysis of Interpublic Group (IPG)’s credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.