Credit: Dan Dennis via Unsplash
One, mostly unnoticed, piece of information to come out of the intense AI discussions at this year’s Cannes Lions is how market analysts view the future of the advertising industry.
Analysts at Barclays, after a series of meetings with industry players at Cannes, concluded that AI will “profoundly and irrevocably” transform the sector.
But the bank’s media team came away from the meetings downbeat and “more bearish” on the industry than before they went in.
The talk at Cannes was about agentic AI, systems carrying out tasks without guidance from people.
The analysts were told by the agencies hat agentic workflows are a game changer and that those with the most data and biggest networks stand to benefit the most.
Analysis of March quarter results from the global advertising groups shows AI investment is a top priority for all.
However, in a note to clients, the analysts acknowledged that the organic growth rate of the top six holdings companies has been “lacklustre”.
The holding companies, while hard to compare because of the different ways they measure growth, are probably collectively growing about 3% a year.
And the Barclays analysts think it will be about 2% growth for a while.
The agencies, they believe, will eventually thrive but it will take time and money.
Barclays downgraded WPP to its underweight rating from neutral, noting that the departure of CEO Mark Read and that the advertising group is currently defending some large accounts.
“We do not believe, unlike others, that WPP is fundamentally impaired,” the analyst said.
A new CEO, yet to be appointed, could revitalise the company but this is likely to come at first with higher investments and lower margins, they said.
Facing a new leader is a global company with negative growth, disaffected staff fighting against the withdrawal of working from home benefits and share price underwater.
WPP posted a string of negative numbers for March quarter, with revenue less pass-through costs down 2.7% to £2.482 billion.
The company’s guidance for the full year is flat to -2% growth.
The analysts also downgraded Omnicom and IPG, which are due soon to become one and be the world’s largest advertising group, to equal weight from overweight on the grounds that there are execution risks to the deal.
Omnicom posted revenue of $US3.7 billion in the March quarter, with organic growth at 3.4%, led by Media & Advertising and Precision Marketing, which together grew at 7%.
IPG posted negative organic growth of -3.6% in the March quarter. Total revenue was $US2.3 billion and net revenue $2 billion. The net loss of $85.4 million included a pre-tax expense of $203.3 million for strategic restructuring pre the merger with competitor Omnicom.
The analysts have kept the current high performer, Publicis Groupe, and Havas, another France-based group at the high rating of overweight.
Publicis’ organic growth in the March quarter came in at 4.9% and the company is maintaining its full year guidance of 4% to 5%.
Havas reported a “good start” to the year with organic growth at 2.1% for the March quarter.
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