Omnicom CEO John Wren spent the bulk of his opening remarks during Omnicom’s second quarter 2023 earnings report on Tuesday talking about the holding company’s generative AI investments and partnerships.
Like its peers, Omnicom is racing to utilize the latest generative AI tools for its clients while upskilling its workforce to maximize use of the technology.
In the past few months, the holding company has announced a slew of AI partnerships, including gaining first-mover access to Adobe’s Firefly diffusion model, an integration with Google Cloud’s Vertex generative AI platform and a partnership with Microsoft that enabled it to launch a proprietary AI workflow tool called OmniAssist. Omnicom has also partnered with Amazon Web Services to access its generative AI tools for campaign automation.
“We’re responding with AI as if our hair were on fire,” said Wren. “We want to be leaders in this area.”
Each of these tools, which automate various elements of the creative process, are available through Omni, Omnicom’s proprietary operating system used by more than 50,000 staffers globally across the holding company. Omni 3.0 rolled out in June with a focus on generative AI partnerships, “where every experience will be powered by generative AI,” Wren said.
He added that “generative AI will have a profound effect on Omnicom,” including “massive opportunities to improve productivity of our people and produce better work for clients.”
However, he cautioned that “AI can never replace the inspiration and genius that comes from our people and creativity.”
“These technological advances will simply make it faster and easier for them to develop and deploy creative ideas,” he added. “[People are] always going to be what differentiates companies like ours from everyone else. It won’t reduce the importance of creativity to the IP of Omnicom.”
But investments in AI are already impacting the workforce. According to chief financial officer Phil Angelastro, Omnicom incurred a repositioning cost of $7.2 million in the quarter in part due to severance actions related to “a swap out of skills.” He added that Omnicom is “always going to be looking at the cost base pretty aggressively” and that the holding company is “making quite a few investments in generative AI.”
A spokesperson did not confirm layoffs but said “we are constantly reevaluating our talent to be aligned with client needs.”
In the long run, Wren sees generative AI as a driver of organic growth as it will make people more efficient at their jobs while making it easier to prove to clients the ROI on every dollar spent.
“I believe [that] will lead to increased organic growth over the near and long term,” he said.
Tech and telco pull back
Omnicom closed out the quarter with organic growth of 3.4% to $3.6 billion in revenue, slowing slightly from the previous quarter, when it reported 5.2% organic growth. It was also down compared to the second quarter the year prior, when organic growth came in at 11.3%. Operating income was $550.7 million, with margins in line with expectations at 15.3%.
Earnings were impacted by a slowdown in spend from the technology and telecom sectors, which pulled back amid mass layoffs earlier this year. Tech clients declined from representing 12% of Omnicom’s revenues in the first half of 2022 to 8% of revenues in the first half of 2023, while telco declined from 5% to 4% over the same period.
These pullbacks impacted the performance marketing discipline in particular, which grew just 2.4% organically, compared to 21% organic growth in Q2 2022.
“If you have the CEO of [a] company cutting 20,000 jobs, you can't let everything else go on in a normal sense,” Wren said. “We’re a services company that succeeds with clients and suffers with clients.”
Despite the dip, Wren described precision marketing as “a core long-term part of our business.” He added that clients across sectors are not walking away from their advertising commitments but looking for flexibility in how they spend.
“You see it primarily in the media area, where clients held back in terms of their upfronts and reserved their rights to enter into the scatter markets as we get later into the year,” Wren said. “It’s that preservation of flexibility that has been a constant theme throughout the year.”
As for other disciplines, advertising and media grew 5.1% organically YoY; experiential grew 9.2%; healthcare grew 3%; commerce and brand consulting grew 2.4% and public relations was flat at 0.1%. Execution and CRM decreased 3.8% due to dispostons in the group.
Wren described media as particularly strong, and said the holding company is competing in a number of pitches where it is on offense vs. defense.
“We've been fortunate in that we continue to bat, I think, above average, and that’s the standard that is expected here,” he said.
Organic growth clocked in at 2.4% in the U.S., down 10.7% YoY from the same quarter in 2022. Wren attributed the dip to the experiential and live events business, which declined 9.1% in the quarter in the region but performed better globally.
Omnicom grew organically by 2.5% in the U.K., 7.5% in Asia Pacific, 2.6% in Europe, 8.4% in the rest of North America, 6.9% for Latin America and 4% in the Middle East and Africa.
The holding company raised its financial outlook for the year from 3.5% to 5% organic growth as it continues to meet targets but remains cautious amid economic uncertainties.
“Overall in terms of our outlook for the year, nothing has really changed,” Angelastro said. “We’ve always been conservative about these projections, trying to find the right balance between appropriate sustainable growth and making the investments we need to support that growth and deliver margins to shareholders.”