16353: DEI Is Good For Business—But Not When Business Is Bad.

Barron’s reported Wells Fargo Analyst Steven Cahall predicts rough times ahead for White advertising agencies, saying the business is moving toward a downcycle. Forget dropping stock prices and diminishing marketing spends—economic stress typically leads to significantly decreased interest in DEI initiatives. Expect slashing diversity budgets, cooling off heat shields, laying off Human Heat Shields, turning off performative PR, and brushing off crumbs. All of which underscores how systemic racism is rooted in self-interest of racist power. Being in the black trumps being into Blacks.

 

Ad Agency Stocks Drop as Analyst Cuts Ratings, Warns of Rough Times

 

By Eric J. Savitz

 

Advertising agencies’ stocks are losing ground after a downbeat call from Wells Fargo analyst Steven Cahall, who sees signs of economic stress on the ad sector.

 

Cahall cut his ratings on Omnicom Group (ticker: OMC), Interpublic Group (IPG) and Stagwell (STGW) to Equal Weight from Overweight. He cut his stock-price target for Omnicom to $88 from $109, lowered his call on IPG to $33 from $43, and reduced his forecast on Stagwell to $8, from $9.

 

In Monday trading, IPG was off 2.3% at $32.13, Stagwell fell 12% to $6.88, and Omnicom declined 1% to $82.95.

 

His view is that the agency business is headed for a downcycle. “We think new biz is onboarding lower/slower, and existing biz is seeing deferrals and cancellations,” Cahall said in a research note. “TV upfronts show a corroborating theme of market-wide weaker action.”

 

The analyst’s view is that ad agency growth is slowing, pointing to recent commentary from both Omnicom and Interpublic. “This has caught investors by surprise because economic forecasts are favoring a soft landing vs. a hard landing, and because overall ad spend seems to have stabilized and could even be recovering,” Cahall wrote.

 

Omnicom shares have sold off nearly 15% over the last four trading days, following what were slightly disappointing second-quarter financial results.

 

The analyst notes that the ad agencies actually outperformed ad spending in the second half of 2022. “Our conclusion is that early on when cutting ad spend, brands relied heavily on their agencies to help manage the process,” he wrote. “They used marketing services to focus on higher ROI ad dollars in a declining spend environment.”

 

Cahall’s theory is that when marketers cut spending last year, they didn’t reduce the 10% to 15% of their budgets going to agencies, as part of a “do more with less” strategy. Now, he said, “as we’re deeper into an ad recession, they may have turned to holding paid media flattish but are trimming their spending on the 10%+ that goes to agencies.”