Interpublic, the pioneering agency holding company, had biggest bragging rights just four years ago. But revenue came crashing down amid asset sales and weak operating results.
It's not all bad news. Interpublic has abandoned an obsession with bigness and unloaded misfit assets, such as race tracks, bought during a frenzy of dealmaking. Better to be a strong and focused No. 3 than an unmanageable No. 1. At this point, though, Interpublic is a weak No. 3.
While hugeness is an easy tally, it's not the best performance measure. But Interpublic comes up short on important metrics including profits and organic growth. A spokesman declined to comment last week because Interpublic was in a pre-earnings quiet period.
Interpublic, whatever its ranking, has the global scale to serve clients with an array of marketing services. So does falling to No. 3 matter? "I'm not sure the holding company rankings have any impact on their business, but it is an issue that they have not been able to grow," said Merrill Lynch analyst Lauren Rich Fine.
Advertising is a perception business, and Interpublic's slip to third hardly creates the image of positive momentum. Said Joseph Stauff, analyst at Schwab Soundview: "Agencies are notorious for chest beating to prop up one's perceived reputation, and they seem to love to use relative size as a differentiator."
Acquisitions and a weak dollar have boosted revenue figures for two rivals, with U.K.-based WPP Group moving ahead of Interpublic and France's Publicis gaining. If Publicis does more deals and Interpublic refrains from buying (or does more asset selling), Mr. Stauff said, it's conceivable Publicis could become No. 3.
One Publicis investment hasn't worked out. It ended up with a 1.4% Interpublic stake when Interpublic bought True North Communications, in which Publicis owned shares. Publicis, betting Interpublic's stock would rise, sold bonds backed by Interpublic shares in 2001. Interpublic then tanked. Publicis this month had to buy back most of the bonds, but it still owns the Interpublic stock. A Publicis spokesman said: "This is not a strategic asset for us."