Omnicom met its guidance of 3.5% to 5% organic growth in 2023 despite a difficult year for some agency holding companies.
It closed off 2023 with 4.1% organic growth year-over-year and $14.7 billion in revenue, while ending Q4 with 4.4% YoY organic growth and $4 billion in revenue.
Growth was led by the Advertising and Media segment, which includes Omnicom’s creative and media agencies and was up 9.3% YoY in the quarter and 6.5% YoY in 2023. Growth was driven by media, which offset softer performance in creative.
Omnicom's PR agencies posted an organic revenue decrease of 2.9% in Q4 to $417.4 million and a fall of 0.8% for the full year to $1.58 billion. The holding company's PR firms include FleishmanHillard, Ketchum, Porter Novelli and MMC.
“The first quarter remains probably the most difficult comps that we have going into the year,” Omnicom CEO John Wren told investors on a Tuesday evening earnings call.
Omnicom grew double digits in Europe (14.1%), Asia-Pacific (10.9%) and Latin America (13.7%) in Q4, followed by the U.K. (5.8%). It was roughly flat at 0.6% in the U.S. and declined 1.3% in the rest of North America.
These trends were consistent with full-year performance, in which the U.S. (2.6%) and North America (3%) grew slower than Europe (7.2%), Asia-Pacific (6%) and the U.K. (4.7%).
“North America is where we were cycling through a number of losses that occurred in the advertising sector over a year ago,” Wren said. “You know, when you lose something, that's bad news, but then you have to live with it.”
One of those losses was Pfizer, which worked with Omnicom agencies including RAPP and consolidated its business with Publicis and IPG last year.
Wren highlighted new business wins, particularly in media, including Amazon, Beiersdorf, HSBC, Jaguar Land Rover, Uber, Under Armour and BMW, among others. But he noted that business won later in the year won’t start driving revenue until the second quarter.
He added that Omnicom grew with automotive, food and beverage and financial services clients last year, but entertainment and technology clients were down. However, Omnicom hasn’t been as impacted by tech spending slowdowns as WPP and IPG, and Wren said he expects “an uplift” from technology clients throughout the year.
For 2024, Omnicom is targeting between 3.5 to 5% organic growth, with Wren predicting tailwinds from the Olympics and the U.S. elections in the second half of the year.
Omnicom is the second holding company to report earnings in its peer set after Publicis dropped its results early in January, revealing 6.3% organic growth for the year and a €300 million investment in AI.
Commerce, content and AI
Omnicom’s $900 million acquisition of Flywheel closed on January 2, bringing “scaled capabilities in the fastest growing segments of the industry — retail media and digital commerce,” Wren said.
In addition to 2,000 commerce experts globally, Flywheel opens up more opportunities in the CPG sector for Omnicom, which is “one area that has never been as strong as it could be” for the group, Wren said.
“I think we'll be more competitive than we've been historically in that area as a result.”
Meanwhile, Omnicom will expand Flywheel’s offering to new verticals like automotive, which has a burgeoning online marketplace for secondary parts, said Flywheel CEO Duncan Painter.
Wren announced Flywheel’s first first client win under Omnicom, Haleon’s e-commerce business in Europe. But for now, according to CFO Phil Algenastro, Flywheel will continue to incur integration costs and won’t be accretive until the end of 2024.
Omnicom is also investing in production, content and influencer marketing. In February, it said that it had acquired U.K. post-production company Coffee & TV with eyes to expand to the U.S. as part of a strategy to launch a global content production business called Omnicom Content Studios. The holding company has also inked partnerships with TikTok, Google, Amazon and Meta around influencer content partnerships and measurement.
While Wren resisted the urge to peg a number to Omnicom’s generative AI investment for 2024 like some of his peers, he said that “going forward, generative AI investments and partnerships to enhance our platforms and educate our knowledge workers are expected to require greater resources.”
But he expressed caution about the “unknown territory” around the unregulated technology and emphasized that protecting clients is top priority. “We're going to have to tread very carefully,” he said.
Omnicom is also eyeing AI and automation as an opportunity to cut costs and drive efficiencies for its own business. “But at the same time, it requires investments that we're going to continue to make in the business,” said Angelastro.
As for driving further savings, Angelastro pointed to Omnicom’s offshoring strategy as well as “future opportunities…on the salary related side,” but did not provide further detail.
Creative and media reunited?
Wren told investors that Omnicom has begun intentionally reporting its creative and media agencies under one segment as clients begin to consolidate their businesses and look for expertise across holding companies. The change also comes as media continues to grow and creative agencies remain stagnant.
He said that “conflicts are rare” and that “most clients are very sophisticated these days and more interested in the teams of people that are servicing them on a consistent basis.”
As a result, he told investors, “you do have to look at them [creative and media] jointly.”
While Wren expects media and technology to continue to be the growth engine of the group, he expects that to be “to our benefit as we bring other technologies and benefits to the client.”
“Any time we can save $1 and prove that we've saved it effectively for a client, in my experience, that client expands their relationship with us.”
But despite lackluster growth in its creative business, Wren was adamant about creativity’s role in the success of Omnicom’s business.
“Creative is our IP, at the end of the day,” he said. “Technology has probably had a greater impact on the traditional setup of an agency in terms of how we can utilize great ideas and through algorithms and through automation, deliver those ideas to the right venues to present them to reach customers. But I think one of the things that has always differentiated us is, actually, the quality of our creative products, and the quality of our agencies and people that we're able to attract.”
Source: Campaign US