Interpublic Group reported a slight dip in revenue for 2023 in a year marked by decreased spending from technology clients and ongoing struggles at its digital agencies.
Organic revenue declined 0.1% for the year as the holding company netted $10.9 billion in revenue, coming in short of forecasts of 2% to 4% organic growth set at the top of the year. Margins for the year met expectations at 16.7%.
Results continued to improve on a quarterly basis, with organic growth of 1.7% YoY in Q4 driven by an increase in project work at the end of the year, compared to declines of 0.4% in Q3, 1.7% in Q2 and 2.3% in Q1.
CEO Philippe Krakowsky told investors on a Thursday morning earnings call that headwinds have affected IPG’s results throughout the year — notably, a pullback in spending among tech and telco clients and underperformance at its digital agencies. In Q4 specifically, these factors created a 2.5% negative headwind.
The U.S., which made up 62% of IPG’s revenue in Q4, was more or less flat at 0.1% YoY growth, marking an improvement over a 1.2% YoY decline in Q3. Growth came from IPG Health, Mediabrands and FCB, which offset declines at digital agencies and McCann, which is still cycling through the loss of Verizon.
For the full year, U.S. revenue declined 1.1%.
The U.K. was roughly flat at 0.4% YoY growth in Q4, while Asia-Pacific declined 1.5%, driven by dips in China and Japan. The Middle East and Africa decreased 1.4% YoY due to double-digit declines in Israel. Continental Europe grew 11.7%, and LatAm grew 15% YoY.
Organic growth across international markets was 1.8% YoY in 2023.
By sector, IPG’s agencies grew 1.1% organically in Q4 and decreased 1.7% in 2023, with strength at IPG Health and FCB offset by what Krakowsky called “some of our more traditional offerings.” Mediabrands drove growth in the media, data and engagement solutions segment, but modest growth of 1.1% in the quarter was offset by continued challenges at digital agencies R/GA and Huge.
The results led to a 1.7% reduction in headcount to 57,400, compared with 58,400 a year ago.
IPG expects to cycle through similar challenges in 2024, leading to a target of 1% to 2% organic growth for the year.
“What we factored into our thinking was strong continued performance from segments of the portfolio … that have either more precision, more accountability or technical expertise baked in,” he said.
“While the top line improved measurably through Q4, for the year, we did not perform up to our expectations, or the high standard we’ve set over the long term,” Krakowsky said.
Tech client pullback & digital agencies
IPG grew six of its eight client sectors in Q4, but a return to growth among tech and telco clients “has not been factored into our plan for 2024,” Krakowsky told investors.
“We’ve factored in the expectation that tech and telco will continue to pressure growth, less so than last year,” he said, adding that McCann will continue to cycle through the loss of Verizon for most of the year.
“Regrettably, we had two sizable losses,” Krakowsky said. “We’re going to basically be carrying the headwinds of both those losses all year this year. That’s taken a lot of the wind out of our sails.”
IPG has “taken several steps to strengthen performance” at its digital agencies, which include R/GA and Huge, including new leadership, co-located global headquarters and innovation hubs and “comprehensively lowering and aligning their operating cost base in line with revenue,” Krakowsky said.
“We’re thinking a lot about whether we’ve got the scale there that we require, specifically around skill sets like digital transformation,” he said, adding that IPG is looking at a “broad range” of solutions “including M&A.”
As a result, these agencies will likely not be positive but will be “less of a drag than last year,” he said.
Media, tech and AI
As it looks to improve performance, IPG is also investing in a number of areas in 2024.
Like his peers, Krakowsky called media the “growth leader throughout 2023” for IPG, highlighting a number of investments the holding company is making in addressable media, retail media, first-party data management and identity resolution. He said IPG is “connecting more of our traditional offerings to these capabilities” and has brought in new leadership to facilitate that.
He also noted a reorganization in September that brought the Kinesso, Matterkind and Reprise brands under one umbrella will make IPG’s technology, data and performance assets easier for clients to navigate.
“There started to be a bit too much complexity. There were just too many places that you had to stop along the way to get that kind of work done,” he said.
But he acknowledged that IPG “still has work to do to activate Acxiom across more of the group,” adding that it will eventually become a “tech node” for “the entirety of IPG.”
Notably, IPG is looking to ramp up its principal-based media buying activities, which involves purchasing media in bulk up front and reselling it to clients at greater efficiencies.
Krakowsky estimates IPG will invest $80 million this year on AI, including new products, partnerships and training. “Think about the annual budgets we’ve got for tech, for development, for training — an increased portion of that is going to be directed to AI,” he said.
He noted that IPG’s AI investment is not new and is “commensurate with competitors, relative to the scale of our respective organizations.”
“There’s been a lot of noise around, you know, who’s spending what those commitments are. I’m not sure that, even for the folks who put some numbers out there, it isn’t necessarily an apples-to-apples [comparison],” he said. “From where we sit, the investments across the group that would classify as AI-related are quite significant.”
He added that IPG’s investment in AI will not “be a significant drain on profitability prospects” and will include leveraging the technology to create more efficiencies in its own business.
Krakowsky noted that while the tech and media side of the business is growing faster, the creative agency business is transitioning from the AOR model to a more project-based business, “there’s still significant value in creativity.”
“In a fragmented media ecosystem, creative ideas matter a lot,” he said. “If you've got great content, and it's part of a bigger system, and then you've got smart delivery, that works. That works pretty well.”