Stagwell Group posted double digit organic growth in Q3, its first quarter reporting earnings as a combined company after its merger with MDC Partners closed in July.
Organic revenue grew 22.8% year over year to $498 million in the quarter, as most of its business units rebounded to surpass Q3 2019 levels. Stagwell has increased its outlook to $2.15 to $2.18 billion for 2021.
Growth was driven by Stagwell’s digital services across digital transformation, research and media, which grew organically 42% year over year and 90% over Q3 2019 pre-pandemic levels. Digital services make up 37% of revenue and Stagwell “expects that mix to continue to increase over time,” said Stagwell CEO and chairman Mark Penn on the earnings call on Wednesday.
Stagwell’s integrated agency network, which includes the group’s creative and digital agencies, grew organic revenues 26.5% year over year to $325.3 million. Revenues from creative services, which make up the second-largest chunk of Stagwell’s business at 34%, grew 11% year over year to $16 million, chief financial officer Frank Lanuto said on the call.
Penn, whose background is in PR, research and politics, said Stagwell remains focused on having the right balance between creativity and technology because “only by having both of those together can you really penetrate into the larger accounts held by the big four,” he told Campaign US in an interview after the earnings call.
He added that aligning creative agencies with digital agencies, such as Instrument with 72andSunny and Anomaly with YML, has driven growth in the creative segment, and that Stagwell’s ability to retain agency founders such as Anomaly’s Carl Johnson has attracted and retained creative talent.
“I was in the other holding companies where collaboration was, at worst, nonexistent, and I've tried to create a culture at Stagwell based on collaboration and not having too many competitors for the same services in ways that didn't make for a congenial relationship,” Penn said.
Media, which makes up 22% of Stagwell’s business, grew organic revenues 32.6% year over year to $111 million. Penn said the formation of the Stagwell Media Network and combination of ForwardPMX and Assembly has allowed revenues to grow faster and enabled the network to compete in bigger global pitches. Overall, the media network oversees $5.5 billion in advertiser spend.
When it comes to competing with the major holding companies in North America on media pitches, “there is no pitch too big for this company,” Penn said, noting new client wins from Forever 21, Nike and H&R Block.
Stagwell’s communications network, which makes up 13% of the business and includes PR agencies such as Allison+Partners, grew 3.4% organically to $7.4 million as the advocacy comms business declined on an off-cycle year. Non-political PR business, however, grew net revenue by 31%, and Stagwell predicts record political spend in 2022, which is an election year in the U.S. Experiential, which is just 1% of the overall business, grew 70% year over year as in-person events started ramping back up.
“There has been a real rebirth and interest in budget and expenditure for PR,” Penn said.
Performance was in part due to a double-digit increase in spending from Stagwell’s clients across all sectors except auto, which continues to struggle due to a global chip shortage. Travel spend doubled year over year, while financial services and communications grew more than 30%. Business with tech clients grew 50% year over year.
“People are looking to continue marketing through the holiday season and are expecting shortages to be transitory,” Penn said during the earnings call.
As Stagwell looks to next year, it’s focused on growing its affiliate program, which currently counts 30 agencies in emerging markets. Allison+Partners recently launched a JV in Latin America with a Stagwell affiliate that grew its footprint to 150 PR specialists in eight South and Central American countries.
Stagwell aims to scale internationally to continue to compete in larger pitches while securing online and offline media capabilities globally and expanding into fast-growing areas such as content creation. While Stagwell is strong in North America and Europe, it has opportunities to grow in Asia, India and Latin America, Penn said.
“Global expansion is an important aspect,” he said. “We're already seeing entry into larger pitches. The more we build out affiliates, the more we stand for larger contracts.”
He added that any acquisitions would be “bolt-ons” to Stagwell’s existing agencies and networks. “There are no freestanding small acquisitions,” he said. “Acquisitions are always bolt-ons to extend capabilities of our platforms, new tech or add-on capabilities.”
The holding company is not immune from a labor shortage impacting the marketing services industry, but said it has hired 1,000 people over the last six months, has centralized recruiting efforts into a database of 250,000 applicants and is leaning into a more distributed workforce. Stagwell has 1,000 engineers, for instance, across Argentina, India, the Philippines and Canada.
“It’s a tight labor market but we've been able to get the labor we need to expand the business,” he said.
Correction: This article previously said media makes up 4% of Stagwell's business. Offline media makes up 4% of Stagwell's business, but media overall makes up 22% of the business.