How Agency Business Is Bouncing Back

Organic growth surged for agencies in the second quarter, with good performance across sectors and regions and rising expectations for the full year. After deep staff cuts during the pandemic, agencies once again are hiring.

Interpublic Group of Cos., Omnicom Group and Publicis Groupe released second-quarter results last week, with WPP and Dentsu Group set to announce results next month. Here's what results reveal about the state of the agency business:

Interpublic posted second-quarter worldwide organic growth of 19.8%, a sharp rebound from last year's depressed second quarter in the early months of the pandemic.

Organic growth is a key financial measure that factors out acquisitions, divestitures and effects of exchange rates.

Interpublic's worldwide net revenue jumped 22.5% year-over-year to $2.3 billion, which CEO Philippe Krakowsky called 'the largest second quarter in the company's history.'

Publicis delivered second-quarter organic growth of 17.1%. Worldwide net revenue rose 10.7% to 2.5 billion euros ($3.1 billion).

Omnicom's worldwide revenue less third-party service costs, a proxy for net revenue, rose 22.6% to $2.7 billion. Worldwide revenue soared 27.5% to $3.6 billion.

Omnicom recorded worldwide organic growth of 24.4%, a turnabout from dismal results posted a year ago at the nadir of the deep pandemic-driven recession. For Omnicom in particular, this year's second quarter had comparatively easy comps vs. the year-ago results.

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'We've rounded the corner into positive growth,' Omnicom Chairman-CEO John Wren said on his second-quarter earnings call as the agency company returned to positive organic revenue growth for the first time since being punched by the pandemic.

So how do the results compare to pre-pandemic levels?

Publicis offers one interesting way to measure that: A 'recovery ratio' that factors in reported organic growth for the period of second-quarter 2019 through second-quarter 2021.

Using Publicis' formula (see table below), Ad Age Datacenter calculated implied worldwide organic growth over that period of 7.9% for Interpublic and 1.9% for Publicis.

Translation: Factoring out exchange rates, acquisitions and divestitures, Interpublic is a bigger company now than it was before the pandemic. (On a reported basis, Interpublic also is bigger-$2.3 billion in net revenue in the recent quarter vs. $2.1 billion in the same quarter two years ago.)

Using the same formula, Ad Age calculated Omnicom's implied worldwide organic growth over that period: minus 4.2%. (On a reported basis, Omnicom's revenue less third-party service costs fell about 1% to $2.7 billion in the second quarter vs. the same period two years ago.) Omnicom declined to comment on Ad Age's calculations.

Publicis, which bought data play Epsilon in July 2019, is a far bigger company now on a reported basis (second-quarter net revenue: $3.1 billion) than it was in second-quarter 2019 ($2.5 billion).

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