Published July 22, 2014
After advertising giants Publicis and Omnicom (OMC) called off their merger this spring, investors were watching to see how the two fared in earnings Tuesday.
Publicis missed estimates, yet Omnicom reported strong growth.
Publicis organic sales growth fell to 0.5%, down from 3.3% in the first quarter and below its 4% annual target. CEO Maurice Levy warned that it would be difficult to meet revenue expectations this year due to fallout from the failed merger.
“Publicis is going to have a problem,” Richard Tullo, analyst at Albert Fried and Company, said. After losing some key accounts, “it takes at least a year to make up for that.”
Omnicom, on the other hand, posted a 6.4% increase in quarterly revenue to $3.9 billion. In particular, the company saw strong growth in the United States where it saw 7.8% growth to $2.1 billion in revenue.
Omnicom’s core advertising business saw strong growth, rising 10.5%. Its public relations business increased by 4.1%.
Although Omnicom has been putting some of the capital set aside for the merger to good use, one of its key accounts may be in jeopardy. Tullo expressed concern that Apple (AAPL) is evaluating the effectiveness of Omnicom’s strategy.
“If it wasn’t for Apple being in review, I’d upgrade the stock,” Tullo said.
Print and television advertising is the traditional bread and butter for the big firms, but increased mobile and tablet consumption has brought about an emerging ad market. Research firm eMarketer estimates that spending on mobile advertising will be increased 83% to almost $18 billion this year. By comparison, newspapers will draw in nearly $17 billion and radio is expected to see $15.5 billion.
Although tech giants like Yahoo (YHOO) and AOL (AOL) have been buying up ad technology companies, some are speculating that the ad firms would be interested in purchasing startups, once it’s clear who the new leaders are. For now mobile ad spending is a lower margin business, so “they have to make up for it in volume,” Tullo said.
Omnicom shares traded 1.4% higher on Tuesday, trading above $72 per share. The company has a market cap of $18.7 billion.