QUOTE AND NEWS
The Economic Times  Apr 16  Comment 
Diesel has been excluded from subsidy sharing mechanism; LPG direct cash transfer has already kicked off, Choksey points out.
Benzinga  Apr 13  Comment 
Pivotal Research downgraded Omnicom Group Inc. (NYSE: OMC) from Hold to Sell. The price target for Omnicom has been lowered from $71 to $66. Omnicom shares have surged 14.16% over the past 52 weeks, while the S&P 500 index has gained 14.83%...
Benzinga  Apr 13  Comment 
Clusterstock  Apr 9  Comment 
John Wren, the CEO of the second largest advertising agency holding group in the world, Omnicom, received $24 million in compensation in 2014 — the same year as his company's failed $35 billion merger attempt with France-based Publicis...
Market Intelligence Center  Mar 25  Comment 
After Tuesday’s trading in Omnicom Group Inc. (OMC) the option-trade picking algorithms that power MarketIntelligenceCenter.com's Artificial Intelligence Center uncovered a trade that offers a 4.04% return, or 28.95% annualized (for comparison...
The Economic Times  Mar 18  Comment 
Tandon sees enough investment opportunities in the market. He feels that one can avoid OMC stocks as predicting earnings for OMCs is quite a challenging task.
Market Intelligence Center  Mar 5  Comment 
MarketIntelligenceCenter.com's option-trade picking algorithms have identified an attractive covered-call trade on Omnicom Group Inc. (OMC). Look at the Jul. '15 $80.00 covered call for a net debit in the $76.88 area. This trade has a duration of...
Benzinga  Mar 3  Comment 
Omnicom Media Group, the media services division of Omnicom Group Inc. (NYSE: OMC), has entered into an upfront agreement with National CineMedia (NCM), America's #1 weekend network, to bring Omnicom client brands to movie patrons across NCM's...
Forbes  Mar 3  Comment 
Looking at the universe of stocks we cover at Dividend Channel, on 3/5/15, Omnicom Group, Inc. (NYSE: OMC), AMC Entertainment Holdings Inc. (NYSE: AMC), and Bob Evans Farms, Inc. (NASD: BOBE) will all trade ex-dividend for their respective...




 

Omnicom Group (NYSE:OMC) is the world's largest marketing and advertising conglomerate. It is organized as a holding company for a group of independent advertising and communication services firms. However, more than 50% of Omnicom's revenues come from sources other than traditional advertising, including public relations, industry-specific marketing, and its Customer Relationship Management program.[1]

Focus on non-traditional advertising methods distinguishes Omnicom from competitors and protects revenues during periods of slow ad spend growth. The firm's structure and size also work to its advantage in a highly fragmented advertising market. As a holding company for three independent networks of agencies worldwide (BBDO, DDB, and TBWA), Omnicom can serve multiple clients in the same industry. When a customer becomes unhappy, Omnicom can retain the client with an offer to revamp the marketing plan at a different subsidiary agency.

Omnicom's earngs are threatened by factors such as a slowdown in advertising spending, a reliance on international sales, and acquisition risk. As a relatively discretionary portion of company expenses, advertising spending is directly correlated to GDP growth and general economic conditions; as a result, Omnicom's revenues are tied directly to the state of the economy. The shift of advertising dollars to the Internet has also had an impact on Omnicom's business model, forcing the company to invest in its digital marketing capabilities.

Company Overview

Omnicom is a holding company with three main divisions - the firms BBDO, DDB, and TBWA. This structure allows the firm to avoid conflicts of interest when serving different clients in the same industry. Omnicom’s agencies offer traditional media advertising, which accounted for 43% of revenues, as well as over 30 marketing services, which accounted for the balance. More specifically, the company generated 36.6% of revenue from Customer Relationship Management, 10.4% from Specialty (i.e. Niche) advertising, and 10.0% from Public Relations services.

Omnicom's clients include global companies such as Bayer , Chrysler, FedEx, Motorola, PepsiCo, Proctor & Gamble, and McDonald's (Omnicom's DDB was the agency behind the "I'm Lovin' It' campaign). The company's work also includes a global brand repositioning initiative for Clorox, in which the brand was marketed as the household cleaner that "enables healthy experiences that transcend the everyday," and the “In An ABSOLUT World” campaign for Absolut vodka, which combines print, broadcast, out-of-home, public relations, on-premise, and viral marketing.

===Business Financials===1 871 In 2009, OMC earned a total of $11.7 billion in total revenues. This was a significant decrease from its 2008 total revenues of $13.4 billion in total revenues. As a result, this had an adverse impact on OMC's net income. Between 2008 and 2009, OMC's net income declined from $1 billion in 2008 to $871 million in 2009.[2]

Key Trends, Risks, and Forces

Advertising

An Economic Slowdown Affects Advertising Spending

Spending on advertising is highly volatile, correlated with general economic growth, which makes such macro factors as oil prices and the U.S. housing market key concerns for Omnicom. Therefore, OMC's earnings may be dependent on the overall economic condition of the economy.

Rise of Internet Advertising Creates New Competitors

Over the past few years, Internet advertising has become the fastest-growing segment of total ad spend, increasing the importance of mastering this medium for large holding companies like Omnicom. Small, nimble agencies focusing on digital advertising exclusively, as well as video hosting and community platform providers, have become serious competitors. Omnicom has responded to the threat by developing its digital arm Agency.com and emphasizing its capabilities in all marketing services, which provides clients with a one-stop advertising solution that specialty shops can't provide. Whether OMC can successfully expand and fend off the smaller online agencies remains to be seen.

Shift From Traditional Advertising Drives Clients to Larger Agencies

Increasingly, clients are moving away from traditional print ads and TV spots to demand comprehensive ad campaigns that incorporate brand strategies, public relations, interactive marketing, online advertising, etc. Global advertising conglomerates like Omnicom are the natural providers of such full-service marketing; while smaller agencies focus on specific media or types of marketing, these firms' networks of agencies collaborate to provide marketing services in any format the client demands.

Other

Planned Acquisitions Pose Integration Risk

As an advertising agency, Omnicom relies on acquisitions to access innovations in the field of marketing and expand to new markets. Each acquisition, however, must be seamlessly integrated into the existing agency network, since Omnicom's business model requires collaboration between the many smaller agencies that comprise the firm - they must be able to combine their specialties to deliver comprehensive marketing services to each client. Rival advertising conglomerate Interpublic Group of Companies (IPG), which lost momentum in the 1990s after a string of acquisitions that it failed to integrate properly, exemplifies this danger - not too long ago, IPG held the same #1 spot in the advertising industry which Omnicom currently occupies. From 1996 to 2001, IPG racked up $2 billion of debt by buying dozens of small international agencies and also acquired True North Communications for $2.1 billion, resulting in accounting irregularities and subsequent poor performance from these companies. IPG has since sold off 51 of these acquisitions.[3]

Excessive Dependence on Developed Advertising Markets Leaves Little Room for Growth

Even in a positive global economic environment, ad spend in developed markets is growing at a much slower rate than in developing regions - below 5% annually for the past few years in North America and Western Europe compared to rates higher than 10% in the Middle East and Asia or even 20% in Eastern Europe and Latin America. Omnicom's business, however, is heavily reliant on these mature and slowing markets - the firm received 53% of revenues from the US, 21% from Euro markets, 11% from the U.K., and only 15% from other locations.image:omnicom3.jpg[4]

Competition

  • WPP Group (WPPGY): Following its 2005 acquisition of US rival Grey Group, for which it competed with private equity firms as well as competitor Havas (see below), London-based WPP group has become the second largest advertising conglomerate in the world. The firm is currently attempting to boost its nontraditional advertising offerings and overtake Omnicom in size with a steady stream of acquisitions, including online game creator WildTangent and interactive marketing agency Blast Radius. While these may boost the firm's competitive position, they also increase its integration risk. WPP recently signed a $4.5 billion deal to provide Dell (DELL) with advertising for the next three years.[5]
  • Interpublic Group of Companies (IPG): Omnicom's largest US-based competitor, IPG has struggled over the past decade due to difficulties in integrating a slew of simultaneous acquisitions and a 2002 accounting scandal which led to restatements of earnings as late as 2005. The company has grown slower than Omnicom (4% last year to Omnicom's 11%). However, higher exposure to developing markets puts IPG at an advantage as the US advertising market matures. The company has built a strong business in Latin America, where it gets 17.5% of revenues, and is currently heavily investing in its Indian agencies.[6]
  • Havas Advertising: Like Omnicom, Havas is organized into three divisions and provides a variety of traditional advertising and other specialized marketing services. The company distinguishes itself from competitors with a more nimble, integrated organizational structure. [7] However, the French conglomerate has fallen behind the top three advertising firms in the past few years.
  • Publicis Groupe S.A. (PUB): Like its French rival Havas, Publicis has been struggling to keep up with Omnicom, IPG, and WPP Group. The company has focused on making strategic acquisitions to diversify both its service offerings and geographic reach. The former category includes French healthcare communications specialist BOZ Group and US-based digital marketing firm Digits. The latter includes several Asian purchases such as events management group Emotion and the 30 Chinese offices of promotional marketing firm Yong Yang.

Omnicom distinguishes itself from competitors through its acquisition strategy, product mix, and organizational structure. The company’s organic growth is higher than that of competitors, decreasing the necessity of constant acquisitions. Instead, the company portends to acquire only promising agencies that fit well into its network. Furthermore, Omnicom's revenue breakdown leaves it well positioned to take advantage of the advertising industry’s recent shift from conventional forms of advertising to more original, nontraditional media; while it receives almost 60% of revenue from providing such services, other global advertising agencies rarely exceed 50%.[8] Finally, Omnicom's three-agency model combines three networks that are almost equally strong in reputation and revenue generation while competitors tend to rely on their strongest agency network for the majority of revenues.

Footnotes

  1. What is CRM?
  2. OMC 10-K 2009 Item 6 Pg. 9
  3. The Shock Waves Rocking Interpublic, Business Week
  4. Omnicom 2007 10-K Item 7 MD&A, p. 15
  5. WPP Group Hoovers Profile
  6. IPG Hoovers' Profile
  7. Havas Hoovers' Profile
  8. Omnicom 2007 10-K Item 7 MD&A, p. 16
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