Analysts suggest Publicis 'bitten off more than it can chew' as shares dive 13%

Publicis: Sadoun
Publicis: Sadoun

Stock market movement follows decline in revenues reported last night.

Publicis Groupe's share price dived 13% to €37.49 this morning (Friday) to its lowest level in more than seven years, with analysts saying that the ad holding group has potentially "bitten off more than it can chew" with acquisitions. The news also sent WPP's share price down 4%.

The company performed below market expectations, reporting a 2.7% fall in Q3 revenue, while forecasts for full-year 2019 are for a 2.5% fall. Publicis's revenue decline in Europe was 3.3%, but North America and Latin America fared worse, down 3.6% and 7.2% respectively. In the UK, revenues were down 3.9% and in Germany down 5.3%.

Publicis attributed the turbulence mainly to cuts to adspend from a number of US clients, which are shifting budget away from traditional media.

However, Liberum analyst Ian Whittaker suggested otherwise. "Our view is that, while there are well-known challenges for [ad agencies], a significant number of the problems are Publicis-specific and we think it is best to be on the cautious side of their guidance," he said.

He noted that Omnicom and Interpublic have continued to show organic growth, while Publicis is trailing behind.

While WPP's share price fell in the aftershock of Publicis's results, Whittaker reckoned that the market was "over-exaggerating the read across from Publicis", adding that "WPP seems to be heading in the right direction".

He suggested that Publicis has "bitten off more than it can chew" with acquisitions such as that of Sapient and Epsilon, with their integration into the group leading management to perhaps "take its eyes off the ball".

Liberum also pointed to an over-concentration of revenue among advertisers – 34% of Publicis' revenues are from its top 30 clients.

Whittaker added that, while it was "more controversial", after making the "most of their digital strengths in the early 2010s", Publicis and WPP might have been hit by advertiser worries over digital media buying.

"We suspect both these groups have been more impacted by client dissatisfaction over digital media buying than perhaps the likes of Omnicom and Interpublic," he said.

Patrick Wellington, equity analyst at Morgan Stanley, said Publicis' optimism that it is "hitting the right strategy may not go down well with investors". He also pointed a finger at acquisition issues.

"Difficulties at a tech-based acquisition are particularly relevant, given that Publicis has only just spent $4bn on Epsilon," he said. "Publicis says Publicis Sapient (its previous big tech acquisition) in the US is shifting from digital marketing services to full business transformation through industry verticals. This is mirroring the strategy that is already delivering strong growth for Publicis Sapient internationally."

Commenting yesterday on Publicis's results, chairman and chief executive Arthur Sadoun said: "We are accepting this painful situation in the short term, to be better prepared for the future."

Meanwhile, Whittaker suggested that there was a "silver lining" to the poor results – they could presage a bid for Publicis, "either the whole or the Badinter shareholding, with Vivendi the most likely candidate".

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