Publicis Groupe posted weaker-than-expected organic revenue growth Thursday, attributing some of the decline to Publicis Health Solutions, its "volatile" outsourcing business, and client spending trends due to GDPR.
The French ad holding company's earnings come two days after Omnicom Group shares suffered their biggest decline in nine years on weaker-than-expected second quarter revenue growth.
The holding company reported organic growth decline of 2.1 percent in the second quarter. Executives said Publicis has yet to see the benefits of some accounts won in the first quarter, and said organic growth was affected by the implementation of GDPR in Europe, as some clients temporarily suspended campaigns "due to uncertainties surrounding the obtaining of consumer consent via the websites on which these campaigns are rolled out."
Pivotal Research senior analyst Brian Wieser said in a research note the organic growth was "a surprising result that was far below consensus and our own expectations."
"While we see plenty of reasons for concern in the organic revenue trends and because of observations we have on the industry regarding insourcing and reduced use of creative agencies with AOR-based relationships, we see reasons for optimism, too," Wieser said in the note. He points out Publicis' claim that its "strategic game-changers" are seeing success—the holding company reported net revenue growth of 27 percent of its "game-changers," which it says are namely data, dynamic creativity and expertise in digital business transformation.
North America saw organic growth of 0.1 percent in the first half of 2018, though the region was down 2.3 percent in the second quarter year-over-year. The holding company said the region was affected by difficulties at Publicis Health, which saw net revenue decline by about €30 million in the first half of 2018, particularly in PHS, its outsourcing business which Publicis Groupe CEO and Chairman Arthur Sadoun characterized as "low-margin" and volatile.
"Obviously, we are addressing that," Sadoun told Ad Age. Publicis Health announced this week it has acquired Payer Sciences, a health marketing agency.
Analysts asked Publicis leaders about Acxiom's Marketing Solutions unit, which IPG said earlier this month it would be acquiring for $2.3 billion.
Publicis Media CEO Steve King said regarding the unit, "Data isn't valuable because you own it." Data data becomes truly valuable when it's applied intelligently to business issues and technology platforms, he said.
"We continue to believe in our strategy of being data agnostic and leveraging the best data sources available around the world," King said. "We continue to believe … our clients must stop being disintermediated from their data and they need to build robust data strategies building and enhancing their own first-party data sources."
He said Publicis' own data strategy is embedded in its strategy to become a partner for clients when it comes to business transformation.
"Some players are trying to enhance programmatic and performance media," he said. "Very tactical and basic use of data. While our goal of driving client growth and identifying new sources of growth and leveraging the [understanding] of people to convert that growth, it's a very important strategic direction for us. So overall … Acxiom did not seem to be the most strategic acquisition to scale our game changers and deliver the growth in line with our ambition."
"Our strategic approach is different to the one that's being followed by IPG," he added. "For us ... we believe very much in the power of choice."
In an interview Wednesday with Ad Age, Sadoun said the company had looked at Acxiom's unit but "We found out that too much of what was at sale was part of the legacy business in terms of data, and the part we feel is very interesting that is LiveRamp was not at sale, so we actually passed on this one very fast." LiveRamp is a unit of Acxiom which provides customer-data services for digital marketing applications; speculation that it will be sold has increased since Acxiom sold the marketing services business.
IPG chairman and CEO Michael Roth addressed a question about buying versus renting data during a call with analysts the day after his holding company announced its deal for the Acxiom unit earlier this month. "The world has changed," Roth said during the call. "Given the scale that is necessary to compete on a global basis, given the relationships now between data and marketing services, our view was that we had to take a hard look at the question of renting versus owning."
Philippe Krakowsky, IPG's chief strategy and talent officer and Chairman and CEO of IPG Mediabrands, added during IPG's call earlier this month the deal is "clearly" an evolution of the holding company's strategy, but says the holding company remains a neutral source when working with clients on which technologies they work with. "We stay agnostic relative to technology in terms of ad tech and martech, but we're really saying that when it comes to data, we believe that there's a significant advantage in having scale in data."