Art & Commerce: Market Moves

Wall Street batters Madison Avenue in the first half of 2000
The stock market has been rather ungenerous so far this year, with the Dow Jones off about 6 percent since early January. Two other common performance measures, the S&P 500 and the Nasdaq index, gained only 3 percent and 5 percent, respectively.
The ad sector was also a mixed bag, but mostly disappointing. Three of the “conventional” ad agencies can boast year-to-date stock price gains: Cordiant, Saatchi and True North. Taken as a group, however, the Big Seven (the three gainers, plus Interpublic, Omnicom, WPP and Y&R) posted an average decline of 7 percent.
The new-age generation, including agencies such as Organic and media-oriented companies like DoubleClick, did far worse, losing more than two-thirds of their value since the start of the year. Of the more prominent names in this subsector, the best performing, Answer Think, was down 47 percent.
Some of the sharp declines through mid-July reflect the extremely high valuations many of these “hot” stocks sported back in January. The plague visited upon the nonadvertising dot-com stocks three months ago took a toll here, too. But despite their deflated condition, these stocks are not especially cheap. DoubleClick, which had the worst decline, is down 85 percent. Even so, the stock still sells at around 14 times the company’s trailing 12-months revenue, which is a lot. Omnicom and Interpublic, by contrast, are selling at around three times revenues–which is high by
historical standards–and these two companies make money, which is more than DoubleClick has ever done (although management foresees turning the corner by year-end).
As poorly as the marketing services group fared, the big clients did even worse. The major automobile companies–representing the largest ad-buying industry–are off by double-digit percentages. P&G is roughly half its price at the start of the new century. Among the best-performing name-brand companies are Philip Morris and Sears. Philip Morris spent all of 1999 declining; it is now bouncing off the bottom. Sears shares have been showing their softer side for two years. Even with the 18 percent price gain so far this year, the stock is not much more than half its price on Bastille Day 1998.
The best performing among the ad-driven companies have been the media stocks. Among the largest, Disney, News Corp., Time Warner and Viacom grew more than 20 percent so far this year–better than any of the agency stocks and far ahead of the market overall. Tribune took a hit when it announced its deal to acquire Times Mirror, and Clear Channel Communications, which has been among the best-performing stocks in the U.S. over the past decade, is catching its breath.
How will these stocks fare in the second half? The big agencies will begin reporting their results for the June period–and updating investors on the year-ahead outlook–this week. Ultimately, a stock’s price reflects its issuer’s profitability, and the outlook for earnings in the ad sector remains good. It wouldn’t be unusual for the stocks that were the weakest in the first half of 2000 to be among the better performers in the second.

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