Stagwell smashes new business records as costs rise in Q2

Stagwell is muscling its way into larger pitches and winning chunkier pieces of business as it grows its status and reputation in the industry.

The holding company reported revenue growth of 6% year over year to $671 million in Q2 as it won larger new business assignments in the quarter. Revenue for the first half of 2024 was $1.3 billion, an increase of 7% YoY.

Organic net revenue growth declined significantly in Q2, however, increasing 1.2% versus 8% in the prior quarter. Margins on net revenue also declined slightly from 17% in Q1 to 16% in Q2 as costs increased.

Revenue in the U.S. grew 7% YoY while international revenues increased 3%, driven by the Middle East and Latin America. 

Net new business revenue hit a record $113 million in Q2 as Stagwell won creative AOR duties for Chevrolet (Anomaly) and Cadillac (72andSunny), among other pieces of business. Net new business revenue was $324 million year-to-date. 

Stagwell chief financial officer Frank Lanuto told investors on an earnings call Thursday morning that the average size of new business wins increased 65% YoY, driven by a 57% increase in deals above $1 million. The holding company is on track to be invited to more than $1.4 billion worth of pitch opportunities in 2024. 

CEO Mark Penn added that Stagwell currently has 11 opportunities in the $10 million-plus range, up from just one the year prior. He said wins including Ferraro, Macy's, Target and Zales will start to filter into next quarter’s earnings report. 

“The industry and its consultants and gatekeepers are now beginning to view Stagwell differently,” he said. “They see us increasingly as a full on competitor to the majors.”

Since President Biden dropped out of the race and VP Kamala Harris has become the likely Democratic nominee, “there's been a surge in contributions and money pouring into the campaigns, and I think right now they're figuring out how best to spend it,” Penn said. “It will take them another week or two to really start placing what's going to be, I think, significant additional money.”

Meanwhile, performance, media and data, grew 5% YoY to $78 million in revenue, while Stagwell Marketing Cloud grew 13% YoY to $65 million, picking up work with Doctors Without Borders, CarMax and PayPal. 

Digital transformation grew 2% YoY to $163 million as clients began to engage with Stagwell on AI transformation projects. 

“All of the tech companies and brands are experimenting with the best way for that technology to be deployed. We feel that's going to really kick off years and years of enhanced digital transformation work,” Penn said. 

Consumer insights and strategy was the only division to decline in the quarter, 2% YoY to $48 million in revenue. 

Stagwell reaffirmed its guidance for the year of organic net revenue growth between 5% and 7%. 

Costs rise as Stagwell invests in its own marketing

But Stagwell is investing in this growth, causing a rise in costs and a slight drag on margin in Q2. 

The holding company is spending on average $20 million on growth initiatives per quarter, Penn said, including activations such as Sport Beach in Cannes, which brought marketers together with athletes including the Kelce brothers and Shaun White. 

Stagwell increased its investment in Sport Beach YoY but did not provide a specific figure, and is looking at how it can double down on the franchise potentially by bringing it to other conferences. 

Including Sport Beach, Stagwell spent an additional $10 million in the quarter on new business pitches, travel, entertainment and one-time compensation expenses.  

Penn said these initiatives are “paying off with the new, larger wins.” Lanuto added that while it's still too early to quantify the success of Sport Beach, “the level of new business opportunities coming out of the [Cannes Lions] festival is unprecedented.”

“[Sport Beach] wasn't just an experience for clients. It was an experience that clients could take away and say, ‘Wow, this is the kind of company I want working for our brands,’” Penn said.  

Stagwell also continues to invest significantly in the Stagwell Marketing Cloud, at approximately $14 million in the quarter, and is actively looking to acquire a demand-side or supply-side platform to build out an end-to-end marketing stack.

“We're looking at a number of alternatives between build, buy and lease. We think, by the end of the year, we'll get there with one of those solutions," Penn said. “It's always our vision to go from global full service down to tech self-service.” 

Still, Stagwell is eyeing cost efficiencies including reducing real estate, “rightsizing” back office departments such as HR, finance and IT, and introducing more AI into its processes to generate roughly $30 million in additional savings by 2025.

“We've completed an initial assessment of needs and established a multi-year road map for products and internal efficiency tools that will enable our companies to capture the opportunities afforded by AI transformation,” Penn said.