Advertising Going Strong for Now, But Softness Ahead (WPPGY, IPG, OMC, PUBGY, GCI, NYT)

Two of the world’s largest advertising agencies reported earnings this morning, and while the reports are good, the outlook for the current quarter is soft. Things are expected to get better in 2012, with major events like the London Olympics helping to boost ad spending. And of course there’s that ad-buying booster known as a US presidential election.London-based WPP plc (NASDAQ: WPPGY) reported revenue growth of 9% for the third quarter, compared with the third quarter of 2010.

Interpublic’s earnings did not include about $132 million the company received from a private sale in August of about half the stock it held in Facebook. The buyer was not identified.

Interpublic also reiterated its outlook that revenue would grow by 4%-5% for the full year and that the company’s operating margin would be around 9.5%. WPP expects revenue growth for 2011 to be 5% and operating margin to reach 11%, up about 0.7% over 2010..

WPP notes the general state of the ad business this way: “Advertising as a proportion of GDP remains at depressed levels in mature markets post-Lehman and the faster growth markets remain under-branded and under-advertised.” Translated, that means going after markets in Brazil and China and other fast-growing developing economies. The company now expects to get 35%-40% of its revenues from the developing world, up from about 30% currently.

Online and mobile advertising is expected to grow by nearly 10% annually over the next five years. WPP said that it received 29% of its revenue from digital and interactive sources in the first nine months of the year.

That growth comes at the expense of print media, where ad spending continues to fall. Gannett Co. Inc. (NYSE: GCI) said that ad revenue for its newspapers fell -8.5% in the third quarter and The New York Times Co. (NYSE: NYT) reported a print advertising drop of -10% in the third quarter. Even though the Times got a boost from its online subscriber revenue and a boost in its online ad revenues, the percentage growth does not make up for the percentage losses in print advertising because the print chunk is so much larger.

WPP shares are up slightly in the first half-hour of trading this morning, to $55.08, in a 52-week range of $43.98-$69.50. Interpublic shares are up more than 14%, to $10.16, in a 52-week range of $6.73-$13.75.

Paul Ausick