Barclays (LON:BARC) has revised its stance on European media stocks, cutting ratings on three major advertising holding companies after a series of agency meetings at the Cannes ad festival left analysts more cautious on the sector’s short-term prospects.
The bank downgraded Interpublic Group of Companies Inc (NYSE:IPG), Omnicom Group (NYSE:OMC) to Equal Weight from Overweight, and WPP (LON:WPP) to Underweight from Equal Weight, citing persistent low organic growth and mounting challenges linked to artificial intelligence.
“We now acknowledge that (1) the organic growth rate of the top six holdings agencies has been lacklustre since 2017 and (2) AI will profoundly and irrevocably transform the industry,” the analysts wrote.
Barclays has been historically bullish on agencies, but said it now expects low revenue growth of around 2% to persist for longer, given the scale of disruption underway.
The bank added that periods of major change typically lead to “more contrasted performances among industry players,” making a broadly bullish view on the sector less compelling.
WPP’s downgrade reflects multiple headwinds, including a CEO transition, major account losses, and negative earnings revisions.
While Barclays acknowledged the stock is already inexpensive, trading at 7x 2025E price-to-earnings (P/E), it sees downside risks continuing, noting that “we are 2-3% below consensus for FY25E” and warning of further potential organic growth drag in 2026 if more accounts are lost.
“We do not believe, unlike others, that WPP is fundamentally impaired and we do believe that the new CEO can turn this ship around, but it is likely to come with higher investments and lower margins initially,” analysts led by Julien Roch said.
