TGTBT - Advertising Agencies - IPG

Every good analyst should understand the acronym TGTBT:

To Good To Be True

I learned it from sports betting. Everybody knows when a bad football team (let’s say the New York Giants) plays at a good team (let’s say the Kansas City Chiefs), that the “spread” should be at least 10 points, maybe more.

If the line comes out at 6.5, inexperienced bettors will say “wow, what a deal, let’s bet a ton of money on the Chiefs”

Sharp gamblers will say “that line is wrong, it’s TGTBT, I smell a rat”

Two days we learn that Pat Mahomes (the Chiefs QB) is limping around with a sore knee, and might not play.

In my opinion, right now, Interpublic Group - IPG - has a “bad knee”, and is a TGTBT stock.

IPG has grown earnings almost effortlessly from $1/share to almost $3.00/share in the last 10 years, yet IPG languishes at 10x earnings and with a 4.5% yield, and a pristine balance sheet. There is even talk of a takeover, but this year the stock has gone down from $34 to under $30 in a strong market. Something is wrong. I hate the term, but IPG’s stock is “acting badly”. The tone of the first quarter earnings call was funereal. That is your vocabulary word for the day. Funereal means slow or solemn. The late great golf announcer Ben Wright used to say “the pace of play today is funereal”.

IPG, despite being an advertising company, had nothing exciting to say on the 1st quarter call. They literally predicted 1-2% growth, and seemed proud of that number. There was no vision of hope for the future. The tone of the call was funereal. That is why it is often better to listen to the call, rather than just read it.

I almost never predict quarterly earnings, but when IPG reports on July 24th, I predict a miss and guide lower for 2024. IPG is TGTBT.

Cynics might say IPG is just trying to stock back a cheap price, or even better they know a European buyer wants to pay $38 for the whole company, and they don’t want to jack up the price. My guess is that something is wrong, and IPG has further to fall. Let’s watch.

I prefer IPG, over Omnicom - OMC and WPP - WPP, because they have more financial discipline and are easier to understand.

Researching IPG. I discovered I will have to understand a Cathie Wood special, The Trade Desk - TTD - which has a market cap of almost $50 billion because it sells at 22x sales. TTD might be the reason the traditional advertising agencies are so cheap. TTD has a “platform” that allows the clients to bypass the advertising agency and go directly to the online sites the client prefers. I now understand 5% of this new business, but I have to learn more.

If you want to buy a cheap ad agency, you might consider Stagwell - STGW. This company was formed by ex-Microsoft guy Steve Ballmer and former Clinton pollster Mark Penn. Penn is almost 70, and still running the show. There are too many “moving parts” for me to get excited, but I will try to learn more.

Then I studied another small advertiser Magnite - MGNI, and I will tell that story in the near future.