Art & Commerce

Key Club Young & Rubicam works for about 5,500 clients. Of these, 42 have been tagged “key corporate accounts” (KCAs), a subgroup that features companies that sell more than one service in more than one country. KCAs have accounted for 46 percent of Y&R’s $1.38 billion in 1997 revenue, which averages slightly more than $15 million in revenue (or $100 million in billings) per account. A cornerstone of Y&R’s strategy is to deepen its penetration into these multinational mega-spenders, as it had done recently with, say, Colgate and Citibank. Performing additional work for an already happy customer tends to produce the fattest margins. The agency also wants to establish incentive-based compensation programs that will reward for helping to achieve client business goals, but it does not appear from Y&R’s IPO filing that many such schemes exist. Management will likely tell prospective investors about the profit-growth acceleration possibilities as margins widen, thanks to increased KCA penetration and incentive compensation. Investors, however, may balk at paying a premium for the stock until there are some signs of superior profit growth.
–Alan Gottesman (westendal is principal of West End Consulting.

Y&R wants to grow its profits by doing ever more work for its largest clients. The bulk of its clients are relatively small, though, and growth opportunities with them may be limited.

…..Account size rank…..Revenue…..Revenue per account

…..Source: SEC filings. Dollar figures in millions

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