Forget Marin, Buy These 2 Advertising Stocks Instead With advertisement spending by companies of all sizes on the rise, advertising companies are gaining momentum. While meme stock Marin Software (MRIN)...
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With advertisement spending by companies of all sizes on the rise, advertising companies are gaining momentum. While meme stock Marin Software (MRIN) is struggling to improve its financials despite favorable industry trends, its peers Omnicom (OMC) and The Interpublic Group (IPG) are well positioned, based on their strong financial health, to continue benefiting from the industry tailwinds. So, please read on for details.
The advertising industry has been generating solid growth as the fast-paced economic recovery fuels the advertising activities of recovering businesses. Media investment and intelligence company Magna expects global ad spending to grow 14% year-over-year to $657 billion, representing a new all-time high.
Nevertheless, enterprise marketing software provider Marin Software Incorporated (MRIN) has yet to recover from COVID-19 pandemic-led damages. In its last reported quarter, the company reported a 27.2% year-over-year decline in net revenue to $6.31 million. Its net loss came in at $2.21 million. And while the stock has surged 1,017% over the past month on the meme stock craze, we think its deteriorating financial performance could cause it to suffer a price pullback soon.
Conversely, given the advertising industry's solid growth prospects, it could be prudent to bet on fundamentally sound companies in this space Omnicom Group Inc. (OMC) and The Interpublic Group of Companies, Inc. (IPG).
Omnicom Group Inc. (OMC)
OMC is involved in advertising, marketing, and corporate communications services in the United States, Canada and internationally. The New York City company offers customer relationship management, public relations, sales support and healthcare services, as well as data analytics, and database management services to its customers.
Last month, at Cannes Lions Live 2021, OMC agencies were recognized for their creative and media excellence. All three OMC creative networks (BBDO, DDB, and TBWA) were in the top ten in the Network of the Festival competition. This honor should help the company stand out in the market and drive its revenue growth.
OMC's net revenue increased marginally year-over-year to $3.42 billion in the first quarter ended March 31, 2021. Its operating profit surged 10.8% year-over-year to $465.4 million. The company's net income increased 11.5% from its year-ago value to $287.8 million over this period. OMC's EPS increased 11.8% year-over-year to $1.33. Its EBITA grew 10% from its year-ago value to $485.3 million, while its operating margin came in at 13.6% versus 12.3% for the first quarter of 2020.
The company's EPS is expected to grow 18.4% year-over-year to $5.98 in the current year. Analysts expect OMC's revenue to increase 8.3% from its year-ago value to $14.26 billion in the current year. OMC's stock has gained 46.1% over the past year and 25.6% year-to-date.
It is no surprise that OMC has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
OMC is also rated a B grade for Value, Growth, and Momentum. Within the Advertising industry, it is ranked #3 of 17 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the OMC rating for Stability, Sentiment, and Quality here.
The Interpublic Group of Companies, Inc. (IPG)
IPG, which is also based in New York City, is a provider of advertising and marketing services and operates primarily through two segments-- Integrated Agency Networks (IAN) and its Constituency Management Group (CMG). The company specializes in consumer advertising, digital marketing, communications planning and media purchasing, public relations, specialist communications disciplines, and data management.
This month, IPG announced the launch of Performance Art, a new worldwide agency that combines deep data, technology, and CRM experience with highly awarded creative talent. This combination should help the company expand its product portfolio and provide a seamless experience to its customers.
During the first quarter, ended March 31, 2021, IPG's operating income increased 220.2% year-over-year to $243 million. The company's net income increased significantly year-over-year to $91.7 million, while its EPS came in at $0.23. Its adjusted EBITDA rose 172.2% from its year-ago value to $264.6 million.
IPG is expected to generate 7.1% revenue growth for the current year. Its EPS is estimated to increase 26% from its year-ago value to $2.18 in the current year. Over the past year, IPG's stock has gained 87.8%. It has returned 35.8% year-to-date.
IPG's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. IPG has a B grade for Growth, Momentum, and Quality. Among the 17 stocks, it is ranked #2 in the Advertising industry.
Click here to see the additional POWR ratings for IPG (Value, Sentiment, and Stability).
OMC shares were trading at $79.61 per share on Friday morning, up $1.30 (+1.66%). Year-to-date, OMC has gained 29.90%, versus a 16.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
