Advertising: size advantage

The US looks almost like an emerging market

For all the gloomy talk of a “lost decade” in the US, the country looks almost like an emerging market to advertising types. Last year, global ad agency WPP reported US revenue growth of 8 per cent compared with 6 per cent for the Asia-Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe. Old-fashioned TV advertising has also staged a comeback in spite of the hype around digital media.

Such unexpected wrinkles highlight the advantage of size. The world’s global advertising agencies – including WPP, France’s Publicis and the US’s Omnicom – are big and broad enough to be significant players in almost every market.

The big agencies have reasons to be cheerful as they head this week to the Cannes advertising festival. Most reported mid to high single digit revenue growth in the first quarter, with the US continuing its strong run. This may seem strange. The US economy remains fragile and commodity price inflation is squeezing profits at traditional advertisers such as Procter & Gamble and Unilever. Agencies say companies are advertising more to encourage customers to accept higher prices. And while western Europe is confirming its reputation for maturity, emerging markets are showing strong growth.

The big agencies are shopping again. Publicis is particularly acquisitive in hot markets such as China and digital media, while WPP recently lifted its self-imposed £100m annual limit on acquisitions after reducing its debt.

Investors are cautious, though, amid signs that the global economic recovery is stalling. Shares in many big agencies have fallen this year and WPP and Publicis are trading on their lowest price/earnings multiples since 2009. No matter how well spread across regions and mediums, advertising agencies remain tied to the global economic cycle.

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