WPP plc (WPP) and The Interpublic Group of Companies, Inc. (IPG) are two prominent advertising agencies. WPP is a London-based creative transformation company that provides communications, experience, commerce, and technology services internationally. The company also advises clients that are seeking to communicate with a range of stakeholders—from consumers to governments and the business and financial communities. In comparison, IPG in New York City offers consumer advertising, digital marketing, communications planning, media buying, public relations, specialized communications disciplines, and data management services.
In the digital era, companies’ increased focus and spending on achieving a solid digital presence to maintain their business momentum has accelerated the growth of the digital advertising industry. Offering cost-efficient services, big data analytics, self-serve sites, and other advanced advertising solutions should enable the industry to grow substantially. Also, advertising services provided by popular search engines and social media companies, like Alphabet Inc.’s (GOOGL) Google and Meta Platforms Inc. (FB), 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, both WPP and IPG should benefit.
While IPG shares have gained 15.2% in price over the past nine months, WPP surged 19.8%. WPP is also a winner with 46.5% gains versus IPG’s 43.2% returns in terms of the past year’s performance. But which of these stocks is a better pick now? Let us find out.
Latest Developments
On Nov. 30, 2021, WPP acquired Cloud Commerce Group (CCG), a leading U.K.-based technology company that helps brands market, sell, and deliver their products across e-commerce platforms and marketplaces globally. This acquisition reflects WPP’s ongoing investment in strengthening its commerce offering for clients and is aligned with WPP’s accelerated growth strategy and focused M&A approach, building on existing capabilities in the areas of experience, commerce, and technology.
On Dec. 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 advertising campaigns. By offering the open-architecture approach of the Kanvas toolset, and licensing its APIs to outside agencies, Kinesso is looking forward to generating a promising new revenue stream and gaining broad market reach in the advertising agency world.
Recent Financial Results
WPP’s revenue for the fiscal year 2021 third quarter, ended Sept. 30, 2021, increased 9.1% year-over-year to £3.24 billion ($4.37 billion). The company’s operating income came in at £2.64 billion ($3.56 billion), up 9.9% from the prior-year period.
For its fiscal 2021 third quarter, ended Sept. 30, 2021, IPG’s net sales increased 19.6% year-over-year to $2.54 billion. The company’s non-GAAP operating income came in at $369.50 million, representing a 16.5% rise from the prior-year period. While its non-GAAP net income increased 21.7% year-over-year to $252 million, its non-GAAP EPS increased 18.9% to $0.63. The company had $159.39 million in cash and cash equivalents as of Oc. 31, 2021.
Past Financial Performance
WPP’s revenue and net income have declined at CAGRs of 7.1% and 35.8%, respectively, over the past three years. And the company’s EPS decreased at a 35.7% CAGR over the past three years.
In comparison, IPG’s revenue and net income have increased at CAGRs of 4.5% and 9.1%, respectively, over the past three years. The company’s EPS has grown at an 8.2% CAGR over the past three years.
Valuation
In terms of non-GAAP P/E, WPP is currently trading at 15.52x, which is 13.2% higher than IPG’s 13.71x. And in terms of non-GAAP forward PEG, IPG’s 1.21x compares with WPP’s 1.49x.
Profitability
WPP’s trailing-12-month revenue is almost twice IPG’s. However, IPG is more profitable, with an 8% net income margin versus WPP’s 4%.
Furthermore, IPG’s ROE, ROA, and ROTC of 23.3%, 5.4%, and 10.6%, respectively, compare favorably with WPP’s 10.5%, 2.3% and 4.6%.
POWR Ratings
While IPG has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, WPP has an overall C grade, which equates to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
In terms of Momentum, both IPG and WPP have been graded a C, which is in sync with its mixed price performance over the past year.
IPG has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. IPG’s 8% trailing-12-month net income margin is 39.5% higher than the 5.7% industry average. WPP has been graded a C for Quality, which is in sync with its lower-than-industry average profitability ratios. WPP has a 4% trailing-12-month net income margin, which is 30.4% lower than the 5.7% industry average.
Among 21 stocks in the Advertising industry, IPG is ranked #3, while WPP is ranked #6.
Beyond what we have stated above, our POWR Ratings system has also rated IPG and WPP for Stability, Sentiment, Value, and Growth. Get all IPG ratings here. Also, click here to see the additional POWR Ratings for WPP.
The Winner
Given the surging demand for digital advertising and marketing services, both IPG and WPP should benefit in the coming months. However, its higher profitability and lower valuation we think make IPG a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Advertising industry.
WPP shares 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 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
Interpublic Group vs. WPP: Which Advertising Stock is a Better Buy? StockNews.com
