Publicis leads the big six (for now). Here’s how it managed to defy holdco malaise

The most recent financials for the Paris-based holding company (preliminary figures were released in January, full-year figures released on February 8) show full-year organic revenue growth at 6.3%. WPP, the French firm’s closest rival by sheer size, recorded 0.9% net revenue growth in 2023 and expects growth this year to be similarly low-key. figures for Omnicom and Interpublic Group will be released later this week, but will trail Publicis based on performance in earlier quarters.

Hélène Coumes, an equity research analyst covering the media sector at Alphavalue, highlights the strength of Publicis’s media businesses, data specialist Epsilon and its creative agencies, which include Saatchi & Saatchi and Le Pub. “Media activities accelerated sequentially thanks to the faster-than-expected ramp-up of new contracts and Epsilon benefited from strong demand for first-party data,” she tells The Drum. “Overall, creative activities remain in positive territory despite the weakness of traditional advertising.”

According to the numbers released in January (a full set of figures will be available later this week), every territory charted growth. Coumes says that’s a sign of strong health: “It is important to notice that all geographic areas contributed… and Asia Pacific benefited from the return to growth in China, versus -2.5% in Q3 of 2023.”

But three-month snapshots can only tell part of the story. Jim Houghton, a partner at M&A advisory Waypoint Partners, notes that Publicis’s share price has been rising steadily for four and a half years and has more than doubled since 2019 (Omnicom’s has risen 21% over the same period, while WPP’s has declined 3%).

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That reflects shareholder contentment with consistent organic growth and astute management of expectations – or, in other words, under-promising and over-delivering. But the commercial performance beneath it, Houghton says, can be traced back to decisions made earlier in the reigns of chairman Maurice Lévy and current chief exec Arthur Sadoun, such as the switch to a single P&L, the creation of group-wide staff operating system Marcel and, most of all, the billion-dollar acquisition of Epsilon in 2019.

Epsilon offer

It’s done an effective job of communicating those changes to shareholders and clients, says Houghton. “Publicis is the only one that’s really talking about modernizing its business,” he adds. “It is the only one that owns that narrative.”

That can promote share price growth, but it weighs heavily in new business, too. Clients need to be convinced their prospective agency partner is taking the right actions, not just memorizing the right answer, on existential questions such as AI, cookie deprecation or marketing automation.

Epsilon, in particular, has been a major asset to Publicis’s media business, which includes Zenith, Starcom and Spark Foundry. Together with IT services arm Publicis Sapient, it accounts for around a third of Publicis’s revenues, growing 12% in 2022 and 10.5% in Q3 of 2023.

“There should be little doubt that a lot of Publicis’s success comes from its media business and that success comes from Epsilon’s capabilities that are at the core of it,” says Forrester’s Jay Pattisall.

Epsilon, which employs around 8,000 staff across 40 offices, can be something of a black box, he says. “There is an element of mystery to Epsilon. It takes a data scientist to understand it and explain it.”

In essence, though, Epsilon provides the machine-learning expertise required to decode and act upon the vast reams of audience data fuelling modern media planning. WPP’s Choreograph and Omnicom company Omni do much the same job for their sister media firms, but Publicis was earlier to the game and has had more time to integrate Epsilon into its organizational skeleton. Several media clients approached by The Drum declined to discuss the specific work done by Epsilon on their behalf, but the unit is at the fore of Publicis’s media and commerce go-to-market offer.

“While the media competency is critical to that, so is Epsilon’s data capabilities,” says Pattisall. “Epsilon and Publicis Media are very connected. One benefits greatly from the other.”

Egg breaking

Sadoun himself, at a recent presentation to investors, said that each of these decisions was a tough and expensive call, and Pattisall explains: “There was a conscious choice of going to market as an entity… to collapse some P&Ls and break some eggs, present a more unified solution for clients. While that may not have been directly beneficial to some of the agency brands or some of its employees, it’s definitely what marketers are looking for.”

Its rivals appear to be learning the lesson. Hidden among WPP’s packet of announcements at last week’s Capital Markets Day was a group-wide plan to shift towards a single P&L with a country model by 2025; a transition that Publicis embarked upon back in 2016.

Those structural changes were necessary, according to Sadoun, to pave the way toward the company’s embrace of AI. “The platform organization we have built over the last decade, our proprietary data of unmatched breadth and accuracy, and the 45,000 engineers, consultants and data analysts at the heart of our model uniquely position us to push the boundaries even further by leveraging AI,” he told investors.

Pattisall says that, in the future, “clients will be buying an agency’s algorithm, not just the reputation or the talent,“ adding that “what drives selection is capabilities, culture and cost, and now that’s an algorithm.”

Publicis’s results this year are undeniably rosier than those of its competitors. But its outlier status is part of the narrative it sells to shareholders. “In a very challenging macroeconomic context... Publicis definitely extracted itself from the pack in 2023,“ Sadoun said as its full results were published in February.

Publicis’s commercial performance should be viewed with more skepticism, though. For one, it wasn’t left totally unscathed by lower spending by tech clients. As Coumes points out, the portion of Publicis business that was affected – its Publicis Sapient IT consulting business – was covered by the performance of its wider portfolio. “All of these more than offset the slight decrease in organic net revenue of Publicis Sapient due to further delays of projects, mainly in the US.”

Meanwhile, though a decent chunk of change, $320m is light work compared with Google or Meta’s AI investments. Publicis outperforms its agency competitors, but if it pursues revenue opportunities from licensing AI tech to advertisers, it may end up sharing its competitive space with the heavyweights of US tech. What, realistically, would get in the way of Microsoft offering a similar application of its AI expertise directly to enterprise clients?

“At the moment, Publicis is playing against a competitive set that, on many measures, it looks stronger than and like it’s winning,” explains Houghton. “If it moves itself to being a platform, then it’s taking on companies that make it look tiny. If it has designs to go where Microsoft or Google are going, it’s not going to win that battle.”