- Publicis Groupe missed internal expectations for Q3 as organic revenue growth slid 2.7%, per earnings results released Thursday afternoon. The company was initially scheduled to announce the earnings on Oct. 16, but the numbers were poor enough that it bumped up the date, AdExchanger reported.
- Organic growth in key market North America was down 3.6% in Q3, and dipped 3.3% in Europe. The ad holding giant now expects organic net revenue to decline 2.5% for the full year, a drop from July forecasts, when it said growth would be relatively stable with 2018's gains of 0.8%.
- Publicis is grappling with spending cuts from clients, particularly in categories like CPG, along with pressures impacting Sapient amid agency reorganization and questions around how it will integrate Epsilon, the data marketing firm it acquired for $4.4 billion in July. Shares tumbled 12% in overnight trading, according to The Drum, with rivals WPP, Omnicom and IPG also taking a hit to stock performance.
On paper, Publicis has made the right moves to modernize, putting a premium on data and focusing on how to layer digital tools into its legacy creative and media business. With the dire Q3 results and slashed full-year guidance, the company shows that the transition to a more fully integrated model — something competitors are also striving for — is happening too slowly to allay investor concerns and meet the demand of belt-tightening clients.
Alex De Groote, an analyst at Trillium Partners, said Publicis' Q3 performance is a red flag for investors and puts the company in a "vulnerable" position, The Drum reported. Publicis CEO Arthur Sadoun acknowledged the company's situation is "painful" in the short term while affirming that leadership is prioritizing tackling the challenges of integration 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," Sadoun said in a statement.
There were some silver linings in the report. In Q3, Publicis added high spenders like Novartis, Mondelez, British Telecom and LVMH to its client roster. But other accounts delivered softer media spending than anticipated, particularly FCA and GlaxoSmithKline.
Sapient, which started shifting priorities from traditional digital marketing services to more in-depth, transformative client projects at the start of 2019, hasn't gained the expected traction in the critical U.S. market. Publicis said it predicts organic revenue growth to range between -2% and +1% in 2020 as uncertainties linger.
How much Epsilon will bolster business moving forward is also an open question. Sadoun said the unit's integration has improved appeal to clients — helping to win new business in Q3 — and enhanced "reported growth to double digits."
But some industry watchers think Publicis paid too much for Epsilon and have been critical of how well the two companies gel strategically. That skepticism appears to be trickling down to stakeholders. On a call discussing the earnings yesterday, one investor asked Sadoun why the $11 billion that Publicis has spent on acquisitions over the past decade hasn't yet translated into organic growth, per AdExchanger.