Dive Brief:
- Interpublic Group of Companies (IPG) saw net revenue down 2.3% year-over-year in the first quarter to $2.18 billion, according to an earnings statement.
- Executives attributed the dip to particular weakness in the tech sector, one of the firm’s largest client categories. Specialist shops Huge and R/GA also continued to weigh on performance while undergoing internal changes, including layoffs and restructurings.
- Beyond sector-specific challenges, executives described a macro environment that is leading some marketers to prioritize short-term efficiency over brand effectiveness. The results signal that agency resilience is being more seriously tested at a point of industry uncertainty.
Dive Insight:
IPG’s revenue dip marks a rare miss in an agency category that has otherwise weathered the pandemic and recent economic volatility surprisingly well. Despite the Q1 bumpiness, leadership upheld a full-year outlook of organic revenue growth in the 2-4% range.
The ad-holding group lapped a particularly strong period, as revenue was up 11.5% in Q1 2022. The market has contracted a good deal since then, with some of the sharpest austerity hitting the tech sector, one of IPG’s most significant client verticals. Discussing the Q1 results with investors, IPG CEO Philippe Krakowsky noted that six of the company’s eight client sectors grew in Q1.
In terms of strengths, IPG’s media, healthcare and data-marketing offerings performed well over the opening leg of the year. Among major new business wins, IPG Mediabrands was named agency of record and marketing transformation partner for Geico following a highly competitive review. The account wields about $1.4 billion in annual measured media spend.
Acxiom, IPG’s data-marketing unit, has also landed among the fastest-growing full-stack marketing partners of Salesforce since the start of 2023. IPG has built out its Salesforce know-how in other ways, including through the acquisition of e-commerce solutions firm RafterOne last fall.
Still, Krakowsky indicated that many marketers are thinking about strategy in ways that pose obstacles to agencies focused on brand-building services.
“The current macro [environment] may be creating a moment in which, for certain clients, efficiency is prevailing at the expense of increasing effectiveness in order to power business growth,” said Krakowsky on the earnings call.
Digital specialist shops R/GA and Huge have remained burdens on IPG’s bottom line, and experienced layoffs and leadership shuffles in recent months. Krakowsky said IPG expects to cycle past revenue decreases in the third quarter. Huge’s new vision is better ironed out, the executive added, with fewer people and hours and a focus on a more consultative model.
Looking ahead, IPG is continuing to invest in emergent areas such as Web3 and artificial intelligence. On the latter front, the group has introduced incubators and labs to figure out where the automated technology might best be implemented. R/GA has started to use generative AI in the creative process for clients including Verizon, Opendoor and Nike.
Responding to an investor question about AI applications, Krakowsky said there is a “great deal” the company could do on the commerce front. IPG last year hired Jeriad Zoghby as chief commerce strategy officer to identify opportunities for future growth.
