Tech slowdown and digital agency performance held back IPG growth

IPG, which owns agency networks such as McCann, R/GA, Huge and Mediabrands, released financial data covering both the fourth quarter and the last financial year as a whole today. Discussing the group’s financial performance, where organic revenue fell 0.1% in 2023, Krakowksy pointed to “the impact of macro uncertainty and challenges due to clients in the technology sector,” adding that “these cross-currents continue to be in effect.”

“Despite signs that the consumer economy is improving, there remains a disparity of views regarding overall macro growth prospects. This is leading to some client conservatism, largely consistent with what we noted over much of the past year,” he added.

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Krakowsky said the firm expects organic net revenue growth of between 1% and 2% in 2024, similar to the subdued expectations of British competitor WPP. Over the course of 2023, IPG recorded net revenue of $9.4bn, with an operating margin of 16.7%. Earnings per share were $2.85.

That mirrors performance at other holding companies, but IPG was particularly affected by a slowdown in tech client spending; the proportion of revenues coming from that category fell 3% year-on-year and Krakowsky said that tech and telco spending cost the firm 2.2% in organic growth.

Creative and digital agency performance

Echoing the results released this week by Publicis and Omnicom, IPG’s media businesses were its “growth leaders.” However, according to chief financial officer Ellen Johnson, the holding company’s digital specialist agencies, Huge and R/GA, dragged the holding company’s growth figures down.

“Our specialty digital agencies continued to significantly weigh on our overall segment growth,” she said, adding that revenue increases at IPG Health, IPG Mediabrands and FCB were canceled out by performance at McCann, R/GA and Huge.

“These increases and others are largely offset by decreases at our digital specialist agencies and by the loss of a client in the telecom sector at McCann,” she said.

Krakowsky told investors that a broad shift among IPG’s clients towards project-based work, rather than AOR relationships, was principally to blame.

“Things have become more project-driven than the traditional model. There’s still significant value and creativity. In a fragmented media ecosystem, creative ideas matter a lot,” he said.

Krakowsky highlighted a number of AI initiatives at Momentum, Huge and R/GA, as well as an internal chatbot developed at Mediabrands, that he said would raise staff productivity. The group, he added, would prioritize AI in its training and development investments, but he didn’t outline specific figures.

“We believe our current and prospective investment in AI continues to be at rates commensurate with competitors relative to the scale of our respective organizations,” he said.

In the longer term, Krakowsky said he expected AI-enabled efficiencies in its media planning and buying offerings would fuel organic growth. “We’ve been a media buyer [whose] value has been about effectiveness. I think there’ll be opportunities there,” he said.

Despite reported job losses at R/GA and Huge in January, the firm increased the size of its shareholder dividend to $0.33 per share per quarter – and said it would spend $320m buying back shares.