Holding Company Stocks Drop 7.5% as Outbreak and Volatility Rattle the Market

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The coronavirus crisis and an oil price war between Saudi Arabia and Russia is accelerating an economic slide that is spooking investors in just about every industry.

On Monday, trading was halted on the New York Stock Exchange for 15 minutes so investors could, according to NYSE president Stacey Cunningham, “have time to absorb information, better understand what’s happening in the market and make decisions accordingly.” By the end of the day, the Dow Jones Industrial Average closed down 2,000 points, effectively ending an 11-year bull-market run.

In the agency world, this scenario couldn’t have come at a worse time. With already stressed margins and minimal growth, holding companies traded on the NYSE and NASDAQ continue to see drops in stock prices.

As of 4 p.m. ET Monday, holding company stocks dropped an average of about 7.5% for the day.

IPG fell about 9%, while Omnicom lost over 8% and MDC Partners dropped just over 7%. Other holding companies, including Publicis Groupe, dipped more than 5%, while Dentsu Group lost more than 8% of its stock price on the day.

The consensus among industry analysts is perhaps predictable: The cascade of bad news and economic turmoil could not have come at a worse time. Yet, some analysts see silver linings, even in light of the challenges.

The impact of coronavirus

When holding companies reported their fourth-quarter and full-year earnings results last month, their CEOs largely focused on how the outbreak would impact their Chinese operations. As the epidemic spreads globally, it’s become increasingly clear that there’s no short-term fix.

Craig Huber, media analyst at Huber Research Partners, said the global nature of holding companies is undoubtedly contributing to hits on their stock prices, as local advertising markets in high-risk countries like China, Italy and South Korea are likely feeling the impact of the outbreak.

“I think the latest downdraft in ad agencies’ stock is due to the uncertainty of coronavirus and potential impact on local economies and advertising and marketing spending levels,” Huber said. “The added fear is does it accelerate any of the industry’s long-term pressure points?”

According to Huber, some of the ongoing trends that affect the holding companies—like marketers moving more work in-house and to consultancies—could potentially become exacerbated by coronavirus fears as brands retool their marketing strategies in light of the outbreak.

For agencies that help brands put on events, cancellations of large-scale events like SXSW and the 2020 BNP Paribas Open tennis tournament do not bode well. While experiential and event agencies only make up a fraction of holding companies—for example, Huber estimates IPG’s revenue from them is roughly 2%—the continued cancelation of events is an “added pressure point” that he said these firms must grapple with on top of everything else.

Jay Pattisall, principal analyst at Forrester, said it would be premature to say that the recent stock slides are industry-specific. Instead, he said, the holding companies are “experiencing the same volatility that all industries have experienced in the last two weeks” because of the outbreak.

“I don’t think there’s anything in particular about the advertising or the agency industry to suggest otherwise,” Pattisall said. He also noted that five of the major holding companies recently reported revenue declines for both the fourth quarter and 2019 as a whole, resulting in stock drops unrelated to the coronavirus.

Pattisall said it’s possible some forms of advertising, particularly television, streaming and digital, could see an uptick if “appreciable portions of the population” begin spending more time at home to seclude themselves from the virus. However, this could come at the expense of others such as out of home and experiential. Even so, since holding companies encompass a range of agencies and specialties, they could be shielded from the effects of ad spend reallocation.

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