Omnicom 3Q23 Headline Organic Growth +3.3%, Most Growth From Principal Trading
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Omnicom reported headline organic growth of 3.3% for the third quarter of 2023, basically in-line with the second quarter results, and consistent with year-to-date growth of 4.0% the company remains on track towards its full year guidance range of 3.5-5.0%
Of course, as followers of my past analysis (or otherwise closely follow the accounting choices of agency holding companies) will be aware, Omnicom reports its growth rates on a gross basis rather than on a net basis. Much of the reported revenue growth in the third quarter evidently came from third party pass-through costs, which were up 14% year-over-year. Backing out all of Omnicom’s pass throughs and assuming these were zero-margin revenues, organic revenues were closer to flat. Revenue less pass-throughs was likely only slightly worse than the estimated net revenue organic growth numbers we saw from Omnicom in the second quarter.
On the margin front, headline EBITA margins were down slightly to 16.2% from 16.4% in the year-ago quarter, but excluding pass-throughs, margins were up 30bps to 21.1%. This would represent an industry-leading level of profitability on a comparable basis.
By segment, Advertising & Media was up 6.1% organically during the quarter. Presuming most of the pass through costs were included in this segment, it would imply growth closer to 0 for the segment on a basis that’s comparable to other holding companies. Of course, inside of this we would expect that media agencies probably grew solidly while creative agencies implicitly fell. Other segments are much smaller, of course, but the company’s Experiential segment rose 9.2% and Precision marketing grew 4.3%. By contrast, Commerce and Brand Marketing fell 1.7% and CRM Executional & Support revenue fell 3.6%
Regionally, the US paced slightly behind global levels with a 2.7% gain, and softness in Canada meant North America was up by only 2.4%. The UK was up 4.4%, other Europe was up 5.7% (and total Europe including the UK was up 5.2%). For reference, Publicis, which reported last week, saw 3.2% growth in the US while Europe grew 10.7% organically. Meanwhile, at Omnicom APAC was up 2.5%, not far from Publicis’ 3.8% level. The much smaller Latin America and MEA regions were up for Omnicom by 19.2% and down 10.8%, respectively.
Looking at categories, the decline in share of revenue from technology clients was notable, if unsurprising given the commentary and data we have seen from other agency groups this year. The share of revenue associated with technology clients was down as it will likely be elsewhere, although it’s relatively modest at Omnicom, falling from only 9% of revenue in last year’s third quarter to 8% in this year’s.