Stagwell CEO Penn says tech spend returning despite growth figures missing expectations

The American group, which owns agency networks such as Forsman & Bodenfors, Assembly, and Code and Theory, positions itself as an outfit challenging the dominance of the Big Six holding companies.

But revenues and organic growth were both depressed by the same factors that have held back WPP, Interpublic Group (IPG), Dentsu, and fellow challenger Media.Monks. Previous estimates from Stagwell had predicted -4% organic growth for the full year, but organic net revenue fell even further, to -6%. The firm's share price dropped 17% on the news, according to the Wall Street Journal.

Net revenue for the whole of 2023 was $2.1bn, 3% lower than 2022; net revenues in the fourth quarter also fell 7% when compared to the previous year’s end. Profits for the full year (Stagwell uses the term ‘net income’) fell 16%, to $42m.

“Steps to align our staffing costs with trending revenue” saw the company shed 4% of its global staff in the first half of the year – cutting its salary bill by around $16m, according to chief financial officer Frank Lanuto. The company employed 13,000 people worldwide in 2022.

• Stagwell’s Mark Penn says job cuts now over as US growth falls at holding company

Speaking to The Drum, Penn says “cutbacks, strikes in the entertainment and auto industries, and recession fears,” were to blame for the firm’s performance. Despite that, Penn insists the company made progress last year.

In 2023, it brought in $270m in new business revenue, a record for Stagwell; in the last quarter, it brought in $65m in new business. “Technology, fast food, and spirits are probably the three areas in which I see significant wins,” Penn says.

Cost controls around staffing would likely stay in place, he adds. But demand from tech clients is slowly recovering. “We’re seeing relatively good comebacks. I wouldn’t say that the spigots are open. I’m hard-pressed to see that they wouldn't be open by mid-year. But they are coming back. We’re not seeing the same pattern that we saw last year.”

The company expects organic net revenue growth of 5-7% in 2024 and 4-5% when its political advocacy business is excluded. Penn argues that AI development at tech companies, and integration by major advertisers, will fuel demand for the marketing services group. Its agencies currently have six separate AI-related projects in motion, he says.

One, he said, for an unnamed office supplies retailer, was typical. “They’re retooling their website so that, rather than providing point and click choices on an individual basis, you use an AI agent that acts like a shopper for you… you say what you want in a more general way, such as 'We’re holding an office party, what do I need for that?’, and it searches out what you need.”

“I think eventually, everyone's going to look at almost every website and turn that website into a more bot-like communication experience,” he adds. Though the firm has begun offering subscription software in the last year, including PR database PRophet, revenue associated with that work is still project-based. The group expects to bring new AI and AR products to market later this year.

Unlike its advertising peers, the firm services a large chunk of its revenue from political advocacy and consulting. With the US presidential and congressional elections coming up in the third quarter of the year, Penn told investors he expects “an all-out slugfest of the highest possible dimensions and proportions. The closer the country is – and this is a very close country – the more political spending goes to infinity.

“Early indications are that this is going to be the strongest political cycle in history.”

After making four acquisitions (and one sale, of agency ConcentricLife), Stagwell has acquired three this year, including French agency group What’s Next Partners and British comms firm Sidekick. Penn says he expects the company to be more active in the dealmaking space in 2024.

“At the beginning of last year, we restructured the cap table and bought out AlpInvest. That constrained my ability to acquire,” he says. “Now we’ve divested from Concentric we’re back in the marketplace and I think, going to be quite active in the next few months.”