Are Advertising Stocks Good Longterm Investments?
Key Takeaways
✅ The are five Ad Giants with +$10 Bio U.S. in revenues
✅ All of them have quite comparable growth & financial ratios
✅ The best advertising stocks pay dividends yielding 2-4%
✅ None of the candidates really stands out
The World Of Advertising Is Fascinating.
I worked in the creative industry for 15 years (I ran my own marketing service firm in Singapore) and have first-hand experience.
Personally, I love the advertising business.
What I like the most are the people, who usually are creative, open-minded and generally fun to hang out with.
Advertising Family Tree
Let’s start by looking at the five largest advertising networks, and their respective flagship agencies:
| 🇬🇧 WPP | 🇺🇸 Omnicom | 🇫🇷 Publicis | 🇺🇸 Interpublic | 🇯🇵 Dentsu |
| AKQA | BBDO | Saatchi & Saatchi | McCann | Carat |
| Ogilvy | DDB | Leo Burnett | FCB | Merkle |
| Landor | TBWA | BBH | MullenLowe | Isobar |
| Wunderman | DAS | Sapient Nitro | FutureBrand | Story Lab |
Find the full advertising tree here.
Personally, I worked with many of these 4As (American Association of Advertising Agencies), in particular with AKQA, Ogilvy, Wunderman, BBDO, DDB, TBWA, Leo Burnett, McCann, and Denstu, while I was running my own marketing service firm in Singapore.
Personally, I believe Ogilvy, TBWA, Saatchi, and McCann are at the top of the food chain, attracting the best creatives and often also the best advertising accounts.
Largest Advertising Companies
Let’s start with a big-picture point of view of the largest and generally considered best advertising stocks out there:
| M. Cap Bio $ | Sales Bio $ | PS | Net Margin | |
| 🇫🇷 Publicis | $19,927 | $15,023 | 1.3 | 8.6% |
| 🇺🇸 Omnicom | $19,074 | $14,322 | 1.4 | 9.5% |
| 🇺🇸 Interpublic | $15,669 | $10,880 | 1.5 | 8.3% |
| 🇬🇧 WPP | $12,000 | $17,666 | 0.7 | 4.7% |
| 🇯🇵 Dentsu | $8,919 | $9,395 | 1.0 | 4.8% |
| 🇬🇧 S4 Capital | $884 | $1,309 | 0.7 | -14.9% |
The above table gives us a good overview.
The advertising industry table over at SeekingAlpha is also excellent (you can try it for free).
I added S4 because it is often seen as the category challenger, only investing in digital agencies.
Key Metrics Of The Largest Advertising Networks
The 4 largest advertising networks all have +10$ Bio U.S. in revenues. Most of them have reasonable price-to-sales earnings of around 1.
All of them have net margins of below 10% (okay, but not great). Personally, I do not like businesses with net margins below 8%.
Let’s check how profitable they are, by looking at their Operating Margin, EBITDA Margin, and Free-Cashflow Margins:
| Operating Margin % | EBITDA % | FCF % | |
| 🇫🇷 Publicis | 15% | 19% | 16% |
| 🇺🇸 Omnicom | 15% | 17% | 6% |
| 🇯🇵 Dentsu | 14% | 17% | 6% |
| 🇺🇸 Interpublic | 13% | 16% | 5% |
| 🇬🇧 WPP | 9% | 14% | 3% |
| 🇬🇧 S4 Capital | 4% | -5% | 6% |
From a first glance at the margins, looks like France-based Publicis earns the title of best advertising stock!
It has the best ratios throughout.
Let’s dig deeper and take a look at their balance sheets.
Balance Sheets Of Best Advertising Stocks
| PB | Debt-to-Equity | Net Interest (Mio $) | Total Assets | |
| 🇫🇷 Publicis | 1.9 | 0.6 | -117 | 38,028 |
| 🇬🇧 WPP | 2.6 | 2.0 | -292 | 35,107 |
| 🇯🇵 Dentsu | 1.4 | 0.6 | -153 | 27,732 |
| 🇺🇸 Omnicom | 6.1 | 2.1 | -111 | 25,238 |
| 🇺🇸 Interpublic | 4.4 | 1.3 | -97 | 16,664 |
| 🇬🇧 S4 Capital | 0.8 | 0.5 | -31 | 2,368 |
Publicis has $38 Bio worth of assets and a relatively low debt-to-equity ratio of 0.6. What this usually means is that Publicis has not financed its growth with debt.
Now let’s look at the dividends of our five best advertising stocks:
| Div/yr | Yield % | Payout Ratio | 5-Yr CAGR | |
| 🇬🇧 WPP | 2 | 4.20% | 0.6 | -18.4% |
| 🇯🇵 Dentsu | 2 | 3.40% | 0.7 | 9.7% |
| 🇫🇷 Publicis | 1 | 3.10% | 0.5 | 0.0 |
| 🇺🇸 Interpublic | 4 | 3.00% | 0.5 | 9.6% |
| 🇺🇸 Omnicom | 4 | 2.90% | 0.4 | 4.6% |
| 🇬🇧 S4 Capital | 0 | 0% | 0.0 | 0.0% |
SeekingAlpha.com assesses the dividends like this:
Judging from this dividend comparison, Omnicom starts to look like the best advertising stock, and Publicis is falling behind.
Now let’s look at in my opinion the most important financial ratios, the ROE, ROA, and ROIC:
| ROE % | ROA % | ROIC % | |
| 🇺🇸 Interpublic | 26 | 5 | 11 |
| 🇺🇸 Omnicom | 45 | 5 | 10 |
| 🇫🇷 Publicis | 13 | 4 | 8 |
| 🇯🇵 Dentsu | 7 | 2 | 6 |
| 🇬🇧 WPP | 18 | 2 | 6 |
| 🇬🇧 S4 Capital | -19 | -9 | 3 |
Omnicom’s ROE of 45% is impressive. ROIs of 8-11% are not too bad, but also nothing great.
S4’s ROIC of 3% is pretty dismal, especially considering Sir Martin Sorrell (former head of WPP) follows a very aggressive growth-by-acquisition strategy.
When looking at the revenue chart over the past 10 years, we see the following:
And here’s the dividend yield of the best advertising stocks:
Interesting to note that even during the crazy pandemic years of 2020-2022, all five major advertising networks still were able to pay out dividends!
Respect.
Conclusion
Personally, none of the 5-6 candidates reviewed stands out. That’s why I believe there is no such thing as the best advertising stock.
None of them grows quickly enough.
WPP has a reasonable valuation, but declining revenues.
Publicis’ growth is okay, but its valuation is relatively high.
So What Do I Do?
Nothing.
I will not buy any advertising stock at this stage.
I believe the classic advertising business model is changing so rapidly, and is challenged by a whole series of potential disruptors (ad platforms like Google changed everything, AI will have a massive impact, ad blockers influence ROIs, etc.).
Sorry, but the fundamentals of the advertising industry make me not want to buy and invest even in the best advertising stock out there!
📘 Read Also
- The 10 Best Luxury Stocks With Dividends
- 5 Best European Stocks With Quarterly Dividends
- The 5 Best Dividend-Paying Entertainment Stocks
FAQ
How do advertising companies make money?
Advertising companies, often called ad agencies, make money by charging the clients for the ads they create and place. Depending on the product or service being advertised and the size and scope of the campaign, agencies charge a variety of fees including creative, strategy, media, placement, and production fees.
What are the best advertising stocks?
The five largest and often considered to be the five best advertising stocks:
– Publicis
– Interpublic
– WPP
– Omnicom
– Dentsu
What are the best advertising and marketing services stocks?
Advertising and marketing service stocks are other names for advertising stocks. The five largest advertising networks are
– WPP
– Omnicom
– Interpublic
– Publicis
– Dentsu
What are the largest global Ad giants?
The largest global Ad giants by market cap are
– Publicis
– WPP
– Dentsu
– Interpublic
– Omnicom
Age when reaching FI: 40 in 2018
Left the rat race: May 2017
Living in: Singapore
Number of kids: 2
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