Stagwell lowers guidance, projects negative growth for 2023

Stagwell will end 2023 with an organic net revenue decline of 4% as it cycles through the impact of headwinds that stunted its expansion this year. 

On an earnings call Thursday morning, CEO Mark Penn said organic net revenue decreased 7% year over year in Q3 and 6% year-to-date as the business was hit by “a number of curveballs” in 2023. 

These include pullbacks from tech companies, which caused a 17% YOY decline in its digital transformation business; the demise of First Republic bank, a large Stagwell client; marketer uncertainty amid an ever-pending recession and high interest rates; and the Hollywood and auto strikes, the former which hit Stagwell’s entertainment research business.

There were some bright spots. Stagwell Marketing Cloud increased revenues 7% YOY in Q3, while the group’s performance, media and data unit grew 8% YOY. 

Stagwell’s creativity and communications segment also returned to growth in the quarter, as it announced the acquisition of creative agency Movers + Shakers prior to the call.  

“Creative, in some sense, is coming back,” Penn said. “People are more interested than ever in the Super Bowl and great creative expression. We’re also cognizant that people want more and more online creativity across social media, and that a lot of cost-effective marketing is there. And that’s where we’re really bolstering.”

Stagwell also saw continued momentum internationally, with growth outside of the U.S. up 24% in the quarter. This was led by 30% growth in Europe, 18% growth in Latin America and a 12% increase in Asia-Pacific. Stagwell added agencies in Vietnam, Colombia and Brazil to its affiliate network in the quarter and acquired Huskies, a digital agency in Ireland, in April. 

Meanwhile, Q3 net new business clocked in at $81 million, bringing Stagwell’s net new business total in the past year to $209 million. Penn added Stagwell’s net business losses were at a “record low” of $7 million in the quarter, and its top 100 customers grew 18% YOY. 

As Stagwell looks to make inroads with Fortune 100 brands, three clients exceeded $50 million in annual spend in the past year, Penn said. 

“The orientation of our business towards our largest most impactful relationships continued in the third quarter,” he said.

Cost cuts continue

These growth shoots, however, were offset by “challenges in digital transformation and consumer insights, particularly our entertainment research firm,” Penn said.

As a result, Stagwell continued a cost-cutting strategy that began earlier in the year. Additional staff cuts in the quarter led to $34 million in savings, bringing its total annualized staff savings to $82 million for the year. 

Stagwell’s headcount is 7% smaller than at was at the top of the year. 

Penn said the layoffs “weren’t focused in any one particular location” and were not driven by increased usage of AI and automation across the organization. 

Stagwell also sold pharma marketing platform ConcentricLife to Accenture for $245 million,  and is “actively exploring” divesting another non-core asset by the end of the year. 

Meanwhile, Stagwell expects to save more than $1 million in annualized costs by consolidating back office finance systems and platforms. The group saved $2.5 million from such efforts in London and New York this year. 

“Our goal is to fine tune our portfolio by paring back on non-core assets, and investing in AI and global expansion to get to scale all of our services,” Penn said.

Growth strategy for 2024

Penn believes that Stagwell will return to growth in Q1 2024 as a majority of the headwinds it faced in 2023 abate. “2024 offers a significant number of tailwinds that allow me to call the bottom here,” he said.

In addition to the benefits of cost cuts, the group continues to invest in growth areas, pumping $8 million into the Stagwell Marketing Cloud in Q3. 

The unit, which Stagwell broke out as its own revenue line for the second time this quarter, grew 20% YOY, with an annualized revenue run rate of roughly $200 million. Stagwell expects revenue from the group to hit $500 to $600 million in the next four to five years. 

With a number of self-serve tools that clients can license, Stagwell Marketing Cloud opens opportunities to work with small and mid-size advertisers, which have been a lucrative revenue stream for tech giants. Penn said Stagwell is exploring acquiring a demand-side platform “to compete for a wide range of large and small clients for programmatic media.” 

Penn is also confident that tech companies are “coming back and starting to spend again,” noting that they are already reissuing RFPs. This will benefit Stagwell’s digital transformation business, which Penn believes experienced a “blip” this year and will continue to grow as companies race to adopt AI.  

In fact, Stagwell is doubling down on digital transformation services despite the poor quarter, having acquired Left Field Labs in October, an agency known for its work with emerging technologies. 

“The tech companies, having gone through the year of efficiency, produced pretty strong earnings [this quarter],” he said. “So we're seeing those come in now and landing on the desk of our digital transformation agencies.

Penn, who has been vocal and written several op-eds about the Israel-Hamas war, didn’t mention the conflict on the call. He told Campaign US in an interview that clients haven’t asked for his advice about how to navigate the situation and that he addressed the conflict in an all-staff memo shortly after the initial October 7 attack.

“I tend to keep those issues out of the business,” he said. “People are here to do business and I don’t hit them with a lot of politics.”