Publicis Groupe’s third quarter 2019 results are a stinker – by the way these things are usually measured.
Organic growth fell by 2.7 per cent in Q3, way below expectations and Publicis is forecasting -2.5 per cent for the year. Which might cheer WPP’s Mark Read up a bit.
Analysts of the sector concentrate on organic growth as the underlying health of the marcoms giants, assuming that these companies have to get bigger to succeed.
In contrast Publicis reports that net revenue (profit for most people) is up 17.3 per cent in the quarter and up to nearly €2.5bn for the year so far, ahead of last year.
So how can this be true?
Sadoun (below with former boss Maurice Levy), the prophet of the ‘Power of One’ for Publicis and its capacity for “business transformation” through the acquisitions of, first, Sapient and more recently data firm Epsilon (at a cost of about €8bn for the two) says: We have taken the tough but necessary decisions needed to tackle the industry challenges we are facing head on. We are without a doubt at the hardest part yet of our journey and as is the case with any major structural change, things always get worse before they get better.”
To have achieved these net revenue figures in a business going backwards there must have been some pretty ferocious cost-cutting.
Is Sadoun’s strategy on target?
He says that Sapient now accounts for 14 per cent of the Groupe’s business, growing at 21 per cent “organically” and, if you include new buy Epsilon, these two account for 27 per cent of its business in Q3. OK but what about the rest?
To an outsider Publicis might look like a challenger tech/consultancy business with lots of underperforming ad agencies, media agencies and all the rest of it attached. But was that the plan when Sadoun took over from Maurice Levy, still in the wings as chairman of Publicis’ advisory board?
By reducing Publicis’ growth target for 2019 as a whole to -2.5 per cent Sadoun seems to be saying that the long-awaited revival of Publicis’ fortunes across the piece – including the still much bigger advertising interests – will take a while longer.
Will Levy and co. wait that long? Are they prepared to be smaller on a global scale, albeit profitable? Publicis must be vulnerable to a takeover.
And the ad and media agencies must surely be on the sales block.