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Dentsu Group's Q3 2024 earnings are marked by modest overall growth but significant regional disparities and a downward revision of full-year guidance.
While the company reported a 0.3% year-on-year increase in organic revenue, this represents a slowdown compared to the 0.2% growth seen in H1 2024, and falls short of the initial 1% full-year target.
The Group says this modest increase in revenue has been driven by growth in Japan and EMEA. Japan recorded historical 9-month stage high net revenues with continued recovery in internet advertising which saw double-digit growth. Meanwhile, EMEA saw stronger than expected media performance in some local markets.
The agency credits its 'One Dentsu' strategy—which focuses on operating as a unified global network—for leading to new notable global client wins. Yet, the Q3 results have led to a downward revision of the full-year guidance. The company now anticipates broadly flat organic growth (0%) and a 14% operating margin, compared to the previous forecast of 1% organic growth and a 15% operating margin. The slower-than-expected recovery in CXM in international markets is a primary factor in this revision.
Japan remains a strong performer for the group, exceeding H1's growth. Q3 saw a 2.8% organic revenue increase, driven by double-digit internet media growth, compared to 1.8% in Q2 and 2.1% for the entire H1. This sustained growth in digital advertising reinforces Japan's position as a key contributor to Dentsu's overall performance. Net revenue reached ¥284.5 billion ($1.82 billion USD) in Q3, slightly lower than H1's ¥287.4 billion ($1.95 billion USD).
APAC (excluding Japan) is experiencing a downturn, worsening considerably from H1's already weak performance. Q3's organic revenue declined by 11.6%, a sharp drop from the 6.2% decline in Q2 and the 6.6% decline for H1. The results show the persistent challenges in the region, particularly in Australia, where decreased client spending, especially in CXM, and softness in the media sector are impacting results. Although some markets like Thailand and Indonesia showed more stability in H1, this positive trend did not continue into Q3.
Dentsu Q2 2024 vs Q3 2024 Earnings Comparison
The Americas and EMEA showed contrasting performances. The America's saw a decline in organic revenue of 3.1%. There has been reduced client spend in the US and slower than expected recovery due to continued challenges in the CXM business. However, overall, the Americas have seen sequential quarterly improvements since Q4 FY23.
EMEA reported organic growth of 6.9%, but this was mainly due to the low comparative owing to the one-off financial impact in the DACH cluster last year. Excluding this one-off impact, organic decline in the 9-month stage in EMEA would have been 3.4%. CXM continues to be impacted by slower recovery across the region, especially in UK, which have a larger proportion of CXM revenues compared to other markets. On the other hand, Spain, where Dentsu acquired Omega (CXM business) last year, have achieved double digit organic growth rate in Q3. Media continues to remain stable ahead of expectations and Creative returned to positive organic growth in Q3 in EMEA.
Looking ahead, Dentsu said it will announce its new mid-term management plan in February 2025 with a focus on strategies around its markets, clients and investments.
Hiroshi Igarashi, president and global CEO of Dentsu Group Inc, said: "In the third quarter, we continued to see sequential quarterly improvement, with the Group reporting organic growth of 0.3% yoy. We have seen notable global new wins in the quarter, higher pitch win rates in Japan and the steady accumulation of net wins in the media business in international markets, which is the result of our continued effort to deliver Integrated Growth Solutions. These are examples that prove the implementation of One dentsu is affecting positive changes within our organisation."
He also acknowledged that business recovery has been slower than expected mainly in CXM where the Group has faced challenges of reduced client spend, especially in the international markets. "Considering the nine months results and forecasts for the fourth quarter, we have revised our full-year guidance of approximately 1% organic growth to broadly flat, and operating margin of 15% to 14%."
And Igarashi highlighted how, over the last nine months, the Group has made internal investments around data & technology, people & culture and business operations to accelerate their competitiveness. "We are confident in our medium-term direction and prospects of the Group, and these internal investments will strengthen our capabilities to deliver Integrated Growth Solutions and restore our competitive advantage to return to organic growth.
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