Rogue Analysts Downgrade Ad Agencies to ‘Sell Sell Sell’ for the Millionth Time

By Patrick Coffee Comment

Time to break out the emergency dancing hot dog filters: ad agency holding companies appear to be going the way of Snapchat.

WPP stock took a dive late last week after investment company Exane BNP Paribas gave the company a double downgrade, moving it from “outperform” to “underperform.” This marked a big change since last November, when the same organization issued a broker note reaffirming WPP’s “outperform” status for investors.

So what happened?

From one analyst who spoke to The Telegraph: “Marketing is driven by mobile, nimbler brands, ecommerce and automation. These areas are dominated by platforms where agencies are sparse, raising the risk of lower mid-term growth.”

News of the cyber attack probably didn’t help either.

This week, American equity research firm Pivotal Research Group followed by suggesting that, hey, while we’re at it, let’s downgrade ALL the holding companies!

Here are some key lines from analyst Brian Weiser’s note sent to investors, via Mediapost’s writeup yesterday:

“Ahead of second quarter 2017 earnings. we revise our outlook and valuations on each [holding company]. With reduced price targets, we continue to rate each of them ‘Hold.’

Between slowing underlying business growth for core clients, zero-based budgeting at many of them, more aggressive applications of procurement-based processes, the ongoing impact on fees from transparency-related issues, like-for-like fee compression, threats of wider-scale in-housing of programmatic buying, slowing shifts of spending into digital media among the clients agencies service and competitive threats from IT services firms (i.e. ‘the consultants’), there’s not a lot of good news to point to for the sector.”

So while agencies will maybe continue growing, the fragmentation of media, etc. prevents them from achieving the sort of gains that make investors happy.

Given how little confidence the average client has in its current media budget, can you really blame them?

Weiser said this finding applies not only to WPP but also to Publicis, Omnicom and IPG. Stock prices for all four companies dropped last Friday accordingly, so we might just have to call it a trend.

Chicken Littles may note, however, that he said the very same thing two years ago. Score one for consistency.

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