Dive Brief:

• Three of the largest ad-holding groups reported earnings last week, presenting a mixed bag for the category amid enduring macroeconomic uncertainty. 
• Interpublic Group of Companies (IPG) saw organic net revenue decline 1.7% year-over-year and cut its full-year growth forecast to 1% to 2% from a previous 2% to 4% projection. Omnicom’s organic revenue was up 3.4% YoY in the most recent period and 4.3% in H1. Publicis had the strongest showing, with organic revenue climbing 7.1% YoY in Q2.
• Along with contending with weak demand from some client verticals, agencies are now under pressure to stay competitive in the emergent field of generative artificial intelligence (AI), though many are bullish on the tech as a transformation bet. 

Dive Insight:

After proving resilient through some of the bumpiest parts of the pandemic, agencies are showing more vulnerabilities as the macroeconomic picture remains cloudy. Tech and telecommunications companies, which have received a thrashing over the past year, continued to clamp down on ad spending in Q2, sending ripple effects into the agency space that have undercut revenue. 

Weaker demand from tech was felt particularly sharply at IPG, as the vertical makes up a hefty portion of its client base. CEO Philippe Krakowsky stated headwinds from the category weighed “significantly” on growth in Q2, while broader uncertainty also affected more traditional consumer agencies. IPG reported strength in its healthcare and media offerings, as well as public relations and experiential, but still cut its full-year guidance, sending shares tumbling late last week. The firm earlier this year made layoffs at digital specialist shops Huge and R/GA. 

Omnicom fared better but still noted a pinch stemming from tech and telecom, including in its precision marketing segment. Revenue came in under analyst expectations, though some pullbacks were offset by higher activity from food and beverage, pharma and automotive clients. 

Publicis upheld a winning streak that has been powered by investments and digital- and data-driven marketing units like Epsilon and Publicis Sapient. The company earlier this year became the second-largest holding group by revenue. In a statement, CEO Arthur Sadoun attributed the impressive Q2 showing to a “unique revenue mix” and new business wins. Publicis was awarded a major piece of the Pfizer business in May following one of the year’s most closely watched reviews, while creative duties were given to IPG. 

Even as tech stands as a sore spot for some agencies, many are also looking to the sector — namely the burgeoning field of generative AI — as a way to accelerate momentum. Omnicom has been aggressive in striking partnerships around the technology, recently inking deals with Google Marketing Cloud and Adobe’s Firefly. The company is positioning these moves as strengthening its Omni data platform and believes generative AI will improve both productivity and organic growth. 

“While the balance of the year will continue to see economic uncertainty, we are entering a dynamic and exciting new era for our company,” said Omnicom CEO John Wren in a press statement. “Omnicom has secured leading positions in generative AI technologies and partnerships to deliver on our promise to achieve the best outcomes for our clients and increase the operational efficiency of our company.”

WPP, which reports its earnings next month, in May teamed with Nvidia to develop a content engine powered by generative AI.