Reversal of Fortune

Call it the millennial bust. None of the “major” agency stocks ended 2000 higher in price than it started the year. True North came close, within 34 cents, but failed to post a gain. The poorest performance came from Interpublic, which fell 21 percent for the year.

The best returns from an investment point of view went to holders of Saatchi & Saatchi, which lost its independence during the year. The stock opened trading in 2000 at about 30 (more than tripling from its inception, after separating from Cordiant three years before), and last traded at 34-3/8 before being absorbed by Publicis.

The most stunning performances came from the new-age agencies, many of which began 2000 at or near their highest-ever prices. Unfortunately, their showings were stunningly bad.

Among the companies that survived the great bubble bursting, declines of 90 percent were common. The rules of arithmetic, stronger than those of the stock market, prohibit declines of greater than 100 percent. But 24/7, which opened the year at a price close to $56, came close, trading at roughly 56 cents by year’s end.

As poorly as agency shares performed, media stocks did worse, on average. Considering some of the major operators, the best showing came from Disney, which, with a 2.5 percent drop for the year, actually beat the Dow (which was down 6 percent and closed the year off 8 percent from its high). Other big names, such as News Corp. (down 14.6 percent), Viacom (-17.4 percent), Tribune (-18.7 percent) and Time Warner (-26.2 percent), did significantly worse than the blue-chip benchmark.

Although agency stock performance declined in 2000, money could still be made—if you timed it right. All of the ad stocks delivered substantial gains to long-term holders who sold in the early part of the year. Anyone smart (or lucky) enough to have jumped out in the first quarter and back in six months later would also have done OK. Each of the major ad-shop equities gained in the fourth quarter, substantially beating the Dow’s 1.3 percent increase.

The market’s recent gyrations, of course, are about the prices of companies, not their values. Ironically, the dot-com collapse helps demonstrate the enduring value of marketing services. Many Web-site operators and their investors fell for the mousetrap fallacy, as in “build a better one, and the world will beat a path …”

First, there’s a limit to how good a mousetrap can actually be; more importantly, if the world doesn’t know about your trap, or where your door is, you’re cooked. Some figured this out, but too late.

Most marketers understand the need to maintain a presence in the consumer consciousness, and they will continue to fuel the marketing services industry’s growth. Agency revenues in last year’s first quarter were bloated by catch-up spending from the dot-coms; financial comparisons this year may be difficult, which could dampen stock-price performance, giving longer-term investors another good opportunity to get back aboard.

Operating near the source of the ad-industry food chain, advertisers—whose marketing outlays fuel the agency and media-company furnaces—had satisfactory years on Wall Street. Among the stars: Philip Morris. Its stock doubled in 2000, nearly returning to its 1998 peak, from where it had plunged by more than 50 percent.

This demonstrates that one year’s dog (Philip Morris in 1999) can be next year’s hero. And considering last year’s squishy environment, Colgate’s 5 percent gain—which was not a recovery from prior-year plunges but a continuation, however feebly, of a long, historic price climb—can only be labeled as “solid.”

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