Despite recession fears, major ad agencies are getting a boost from Wells Fargo –

Despite fears that a recession will hit the advertising industry hard, one investment firm is optimistic.

Wells Fargo analysts released an update on two ad agencies on Friday, An international group of companies or IPG and Omnicom Group, overweight in equal weight. While this may be counterintuitive, with many seeing advertising as the industry’s first success, analysts see strong agency business models as well as strong cash flows, as well as the likely opportunity to buy back more shares, which could raising stock prices and making them companies are solid investments in stocks during a potential recession.

Ad agencies will still see downward trends in spending on paid media and event marketing as a less “dramatic” recession hits consumer spending, analysts said.

“The view in our house is that this recession will be more like 2001 than 2009 or 2020, which means it will not have the dramatic apocalyptic psychology of the GFC and the pandemic. But it must be characterized [by] As a result, slower consumer spending and fewer advertising dollars,” the analysts said.

other analysts warned “Storm clouds” are developing in the advertising industry, and top media execs see the beginnings of some weakness in advertising segments.

At the Allen & Co Sun Valley Conference, Bloomberg reports HorizonMedia CEO Bill Koenigsberg said his customers were seeing “blinking warning lights” for ad spend. IAC CEO Joey Levin said he is also seeing the reaction from advertisers.

Unlike previous recessions, analysts say these ad agencies now have more resilient models and are equipped with more core revenue than in the past.Capital gains are less cyclical due to increased digital transformation, media buying and performance marketing. Overall, Wells Fargo sees a decline of about 4% per share for these companies in 2023, which they say is “It’s a lot less than what the market cooked up.”

“The biggest risk is the narrative as they ‘advertise’, and the possibility is that they are more inclined to buy back and not see the EPS/revenue cuts that the market is already pricing in,” the note reads. reading.

Radio, however, is a different story.

Wells Fargo cut iHeartMedia to the same weight as overweight on Friday, predicting a 10% slowdown in cross-platform growth in 2023 as analysts predict a “major decline in radio spending” during the recession.

iHeartMedia is expected to continue to expand its digital business, primarily driven by growth in podcasts, although this segment is likely to be affected by cyclical advertising pressures.