Which advertising stock is a better buy?

WPP plc (WPP) and The Interpublic Group of Companies, Inc. (IPG) are two leading advertising agencies. WPP is a London-based creative transformation company providing communications, experience, commerce and technology services internationally. The firm also advises clients seeking to communicate with a range of stakeholders, from consumers and governments to the business and financial communities. By comparison, IPG in New York offers services in consumer advertising, digital marketing, communications planning, media buying, public relations, specialized communications disciplines, and data management.

In the digital age, increased focus and spending by businesses to achieve a strong digital presence to maintain their business momentum has accelerated the growth of the digital advertising industry. Offering cost-effective services, big data analytics, self-service sites, and other advanced advertising solutions is expected to see the industry grow significantly. Additionally, advertising services provided by popular search engines and social media companies, such as Alphabet Inc. (GOOGL) Google and Meta Platforms Inc. (Facebook), make the industry highly competitive. The global digital advertising market is expected to grow at 13.7% CAGR to $1.45 trillion by 2030. So WPP and IPG stand to benefit.

While IPG shares have gained 15.2% over the past nine months, WPP has jumped 19.8%. WPP is also a winner with gains of 46.5% compared to IPG’s 43.2% returns in terms of past year performance. But which of these actions is a better choice now? Let’s find out.

Latest developments

On November 30, 2021, WPP acquired Cloud Commerce Group (CCG), a leading UK-based technology company that helps brands market, sell and deliver their products across e-commerce platforms and marketplaces around the world. . This acquisition reflects WPP’s continued investment in strengthening its commercial offering for clients and aligns with WPP’s accelerated growth strategy and targeted M&A approach, building on existing capabilities in areas of experience, commerce and technology.

On December 16, 2021, Kinesso, IPG’s marketing intelligence brand, developed nine APIs for its Kanvas Developer Toolset to unify the various software tools used to manage ad campaigns. By offering the open architecture approach of the Kanvas toolset and licensing its APIs to outside agencies, Kinesso looks forward to generating a promising new revenue stream and gaining broad reach across the advertising agency market.

Recent financial results

WPP’s revenue for the third quarter of fiscal 2021, ended September 30, 2021, increased 9.1% year-on-year to £3.24 billion ($4.37 billion) . The company’s operating profit was £2.64 billion ($3.56 billion), up 9.9% from the prior year period.

For its third quarter of fiscal 2021, ended September 30, 2021, IPG’s net sales increased 19.6% year-over-year to $2.54 billion. The company’s non-GAAP operating profit was $369.50 million, an increase of 16.5% over the prior year period. While its non-GAAP net income rose 21.7% year-on-year to $252 million, its non-GAAP EPS rose 18.9% to $0.63. The company had $159.39 million in cash and cash equivalents as of October. 31, 2021.

Past financial performance

WPP’s revenue and net profit have declined at CAGRs of 7.1% and 35.8%, respectively, over the past three years. And the company’s EPS has declined at a CAGR of 35.7% over the past three years.

By comparison, IPG’s revenue and net profit grew at CAGRs of 4.5% and 9.1%, respectively, over the past three years. The company’s EPS has grown at a CAGR of 8.2% over the past three years.

Evaluation

In non-GAAP P/E terms, WPP is currently trading at 15.52x, 13.2% higher than IPG’s 13.71x. And in non-GAAP PEG forward terms, IPG’s 1.21x compares to WPP’s 1.49x.

Profitability

WPP’s last 12 months revenue is almost double that of IPG. However, IPG is more profitable, with 8% net profit margin against 4% for WPP.

Additionally, IPG’s ROE, ROA, and ROTC of 23.3%, 5.4%, and 10.6%, respectively, compare favorably to WPP’s 10.5%, 2.3%, and 4.6% .

POWR Rankings

Although IPG has an overall rating of B, which translates to Buy in our own POWR Rankings system, WPP has an overall rating of C, which is equivalent to a neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.

In terms of Momentum, both IPG and WPP were rated C, which is in line with its mixed price performance over the past year.

IPG has a B rating for quality, which is consistent with its industry-leading profitability ratios. IPG’s 8% 12-month net income margin is 39.5% higher than the industry average of 5.7%. WPP was rated C for quality, which is in line with its lower average profitability ratios than the industry. WPP has a 4% year-over-year net income margin, 30.4% below the industry average of 5.7%.

Among the 21 actions of the Advertising industry, IPG is ranked #3, while WPP is ranked #6.

Beyond what we’ve stated above, our POWR rating system also rated IPG and WPP for stability, sentiment, value, and growth. Get all the IPG ratings here. As well, Click here to see additional POWR ratings for WPP.

The winner

Given the growing demand for digital advertising and marketing services, both IPG and WPP stand to benefit in the coming months. However, its higher profitability and lower valuation, in our view, makes IPG a better buy here.

Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here to access the highest rated stocks in the advertising industry.


Shares of WPP were trading at $77.09 per share on Monday afternoon, down $2.62 (-3.29%). Year-to-date, WPP has gained 2.04%, versus a -9.37% rise in the benchmark S&P 500 over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. Following…

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