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'Big 4' Advertising Agencies, Part 1: Introducing The Companies And Industry

Apr. 21, 2016 12:33 PM ETWPP plc (WPP)IPG, OMC, PUBGY7 Comments
Dividend Drive profile picture
Dividend Drive


  • The advertising world is dominated by the 'Big Four' agencies: WPP, Omnicom, Publicis Groupe, and Interpublic Group of Companies.
  • In this series I compare and contrast them.
  • Both the industry as a whole and these companies specifically look set for strong secular growth going forward.

We are immersed in advertising. I doubt few of us are able to travel more than a few minutes into a day before we are hit by one piece of advertising or another. Of course, behind every advert an individual or business which has designed and arranged the advert. Dominant in this space are the "Big Four" advertising agencies.

These four advertising behemoths are equally spread between the US and Europe. The US-listed ones are Omnicom (OMC) and Interpublic Group (IPG). The Europe-listed ones are London-listed WPP (WPPGY) and Paris-listed Publicis (OTCQX:PUBGY).

Growing ubiquity of advertising in emerging markets alongside growing complexity of the advertising landscape in developed markets have made these advertising giants increasingly well-placed for growth. Yet which are more attractive today?

I plan to compare the big four alongside one another. Don't worry, I am not going to load all this up into one article. Instead, I am going to provide this comparison over a series of articles. Here we will start with a general introduction leaving us with a better understanding of the attractions of the sector.

Later installments will look more fully at their relative performances across a number of metrics. Revenue, earnings and margins will be compared alongside cash flow and debt strength. Shareholders' return will also be compared before we take a look at their relative valuations. So, let's get started.

Who Are the Big Four?

The big four are made up of a complex of smaller businesses. Niche operators ranging from pure-play advertising or public relations agencies to data businesses. The sheer complexity of this network of smaller businesses can be seen from this excellent graphic I have adjusted (data from R3):

How Big are the Big Four?

Naturally, the big four advertising agencies are big. Yet it is clear that WPP and Omnicom

This article was written by

Dividend Drive profile picture
A UK-based investor focusing on analysing and investing in attractive high quality, cash-generative businesses with strong dividend growth prospects.

Analyst’s Disclosure: I am/we are long WPPGY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (7)

As a shareholder in WPP I think it stands head and shoulders above the other 3 companies you compare it to. It has the best brands ... Ogilvy , J Walter Thompson, MindShare , Grey , Y&R, MillwardBrown ... the list goes on. Sir Martin Sorrell is a genius. The company is very shareholder friendly and pays great dividends as well , there really is not a lot not to like !!

A stock I plan to never sell.
My principal concern with this sector is the growth in web advertising being placed with relatively few operators such as Google and Facebook. What is to stop these companies offering a direct facility to advertisers? If a company is to place the majority of its adds on 2 or 3 websites why will it need an advertising agency?
Dividend Drive profile picture
Thanks, dave. Interesting thought. Certainly if Google or their like took to trying to set up their own ad agency that would be a very interesting development which would threaten the likes of these big four. Yet I wonder how likely this is. Most businesses look for advertising to cross a wide-range of media which still puts it almost exclusively in the hands of the above.

What is interesting is that the data aspect of these agencies is pulling in more customers who have increasingly been outsourcing their marketing work after many years of pulling it in. Clearly, Google etc. have epic amounts of data from that side. This is where they could provide a particularly strong USP over the above companies. That being said, WPP in particular has a very strong presence here already.

Also, I wonder to what extent businesses themselves would be comfortable allowing a Google etc. to control both a large part of their advertising design and distribution at the same time. Also, I would really like to find out how powerful the relationship aspects is in the advertising world. To what extent, I wonder, could a Google really pull apart these established partnerships. A really interesting question.

Do you know if any of these dominant web operators are currently operating or looking to operate an ad design-related side show?
westendal profile picture
Somewhat offputting when an "analysis" doesn't know the difference between an ad agency and a multi-agency holding company.
Dividend Drive profile picture
Haha, I sort of agree with you, westendal. However, all of them are generally known as the big four advertising agencies even though they are, all, really holdings companies. That is why I ensured it was made clear at the start that they are companies composed of many small agencies across a broad range of PR, marketing and advertising areas. It seems unnecessarily long-winded and (for some) confusing to replace "ad agency" with "multi-agency holding company" when the former more than makes clear what they do.

What do you think of the prospects in the sector? Do you think the big four are able to continue their sector-beating growth in the future? Do you think it is likely we will see some consolidation in the sector even after the failed Omnicom/Publicis merger? IPG seems, to me, a possible target though it is not clear what particular benefits any of the others would get from purchasing it other than scale. Be interested to hear your thoughts.
westendal profile picture
The sector will do OK; usually good but rarely great.
To oversimplify the case:

Most products in most categories are pretty much one like another (how good can a toothpaste (or a car, even) possibly be?). Therefore, they must compete on factors extrinsic to the product itself; price, packaging, image, brand association, whatever.

Even if you build the proverbial better mousetrap, the world will not beat a path to your door if it doesn’t know about the trap or doesn’t know where your door is.

Almost always, a breakthrough product will attract imitators, making it very tough to achieve a sustainable competitive advantage. Once again, the extrinsics will become important.

As the rest of the world catches up with the fully-developed parts, so the growth of consumer-centric economies will drive demand for marketing/communications services for quite a while. (Think China, India and Africa.)

As important as these extrinsics are, most companies spend less than 10% of sales on them – often much less, and they find it more economical to outsource much of the advertising and promotion work because even the biggest advertiser companies would have a hard time attracting and retaining the best ad crafters. These folks work best when they are amidst other ad people and when they have some variety in the their assignments.

As the media side becomes more complicated, it can also be advantageous to outsource. One advertiser, even a big one, after one year has one year of experience; an outside media specialist, working for, say 10 clients, has, after one calendar year, 10 experiential years. The specialists get smarter faster.

So, given these economic underpinnings the business, broadly defined, will do OK.
Dividend Drive profile picture
Thanks, westendal. That may have to count as the most thorough response to one of my questions in the comments ever. Much appreciated.

Outsourcing has grown in recent years which is also of interest. The advertising environment has become so increasingly complex that even businesses who previously had large internal advertising segments have found it more effective and efficient to hand it to specialised businesses. With their mix of data collectors, ad agencies and general PR agencies these companies seem well-placed to comfortably handle all their needs in one. It is a win-win for both, it seems. Personally I see the advertising world becoming increasingly more complex as time progresses, this can only play into the big players like these more.

Do you hold any of these, by the way, or other smaller peers?
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