Apr 21, 2020 - Economy

Ad agencies expect coronavirus-driven losses to be worse than Great Recession

Sara Fischer

Illustration of a ad agency being shredded. — Illustration: Rebecca Zisser/Axios

Many of the biggest advertising holding groups are forecasting that their clients will severely pull back on ad spend due to the coronavirus.

The big picture: In a note to clients Tuesday morning, MoffettNathanson senior analyst Michael Nathanson predicted the drop in organic growth during the coronavirus crisis will be steeper than the financial crisis for major ad agencies holding groups like WPP, Omnicom and Interpublic (IPG).

Yes, but: Nathanson says he also predicts "a more rapid, although still gradual, recovery with a return to prior levels of organic growth in 2021."
This is in part due to the fact that agencies are labor intensive and are able to adjust headcount as necessary to stabilize margins.

The state of play: Publicis Groupe chief executive officer Arthur Sadoun told investors last Monday that he expects a far worse ad decline than the 10% plunge during the financial crisis, after the company bumped up its earnings report.

Omnicom's CEO wrote in a letter to staff obtained by CNBC that it anticipates cuts and furloughs.
Dentsu has implemented 10% pay cuts, furloughs, and layoffs across the U.S. amid the pandemic, as clients are expected to further pull back spend.

WPP withdrew guidance for 2020 in late March, after experiencing an uptick in client ad cancellations. The company's CEO Mark Reed says the company has freezon hiring, and couldn't commit to avoiding layoffs, although he said it would be a last-resort measure.
IPG (Interpublic Group) withdrew its financial performance targets for full-year 2020.

Go deeper: Ad market expected to take a big hit in 2020

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Ad agencies expect coronavirus-driven losses to be worse than Great Recession

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