A full-blown recovery might not be here just yet. But for one economic staple, it may not have to wait much longer.
While restaurants, hotels and air travel may be strong indicators of economic performance, they aren’t the only ones. And they aren’t even the most important ones.
We’ll know that we have moved past the pandemic and ugly 2020 when advertising fully recovers.
It doesn’t matter if you own a small general store on some main street in the middle of nowhere or if your name is Jeff Bezos. You need to get your business name and products in front of potential customers to grow at all.
Advertising has taken a serious hit over the last 12 months, as you can imagine.
As companies geared down spending to conserve capital, advertising seemed like an easy cost to cut.
Even during one of the largest political campaign seasons in U.S. history, advertising revenues slipped nearly double digits in 2020.
Some 50,000 people in the advertising industry lost their jobs over the last 12 months according to Forrester Research.
For the industry’s top company, that just added fuel to the fire.
Broken from the Top Down
Mad Men’s Don Draper wouldn’t recognize his industry if he lived in 2021, or, you know, was an actual person.
Nothing looks the same as it did even 10 or 20 years ago these days.
Companies have been forced to migrate off traditional mediums like magazines and broadcast television networks.
With the internet in everyone’s pockets and seemingly little time to sit around reading a physical magazine, the way businesses are able to reach customers is totally different.
Alphabet Inc. (NASDAQ: GOOG) is the fourth-largest publicly-traded company in the world worth $1.2 trillion not only because people like to Google incredibly random things. Its actual success has been in putting advertisements in front of billions of customers.
So, the companies that come up with ads and profit off large spending campaigns have needed to adjust.
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Money spent on Google Ads is much better performing than money spent on a 30-second clip during a local nightly news broadcast.
Unfortunately, for an industry that does indeed have a history on Madison Ave. and three-martini lunches, there are some holdouts.
WPP plc (NYSE: WPP) is the largest ad company in the world. Located in London, WPP runs multibillion-dollar, global campaigns for nearly everyone: from Proctor & Gamble to Microsoft.
Unfortunately, WPP fell behind the times. With shifts to digital, the company has watched its more traditional approach led to years of falling revenue.
Then, 2020 hit.
The company was rocked even harder than most in early 2020, as everyone could see the writing on the wall. With global economic panic, no one was going to spend on advertising.
Fortunately, it was waking up just in time.
Forced Restructuring Clicks at Just the Right Time
Just prior to the world shutting down, especially for advertising, WPP was starting to get its act together.
It had finally, after waiting far too long, begun to ramp up its digital efforts.
From nothing a few years ago to 25% of WPP’s total business today, the company has built the foundations of a digital path forward.
But with the layoffs, industry-wide devastation over the last year and accelerating changes in how customers interact and see advertising, that move too is happening faster than expected.
In the next few years, the company will see about half of its total revenue coming from online and digital campaigns.
But more importantly, and a number I believe is being missed by investors, is this: Already, 76 of its largest 100 customers (those buying WPP’s campaigns) have already made the switch and went digital through WPP.
That’s important. If it can please the multinational giants with its digital efforts, it’ll be able to compete with everyone else.
Already, this effort should pay out. For the first time since 2016, WPP expects to record net sales growth this year.
Yet, as you can see, shares are still trading well below where they were before last year’s crisis struck, let alone a few years ago, when WPP was falling behind.
Now that it has a digital plan and growing presence, expect a huge recovery over the next 12 months.
Obviously, investors will feel more comfortable when we know the end date for COVID. Advertising is still not 100% back.
But as we gain a clearer picture of that post-pandemic world, WPP will lead the recovery just as it led the fall.
To your prosperity and health,
Joshua M. Belanger