The five big ad holding companies are taking steps to shore up their finances as analysts say the worst effects of the pandemic are yet to come

• Analysts say the worst is yet to come for the ad holding companies like WPP, IPG, and Publicis as they brace for COVID-19's full impact, with revenues predicted to fall as much as 15%.
• JPMorgan predicted that the third quarter would be the most dramatic, with advertisers cutting TV and digital spending.
• Pivotal Research Group senior analyst Michael Levine said the pandemic recovery would be more challenging for the holding companies than the last recession because these companies already face significant headwinds.
• The holding companies have variously pulled their earnings estimates for 2020, frozen hiring, and instituted pay cuts.
• Click here for more BI Prime stories.

The coronavirus pandemic has already reshaped the advertising industry - and its most dramatic effects are still months away.

That is the primary takeaway from JPMorgan and other top financial firms and analysts and all five of the largest ad agency holding companies as they look to reassure investors.

IPG, WPP, and Publicis all withdrew their annual earnings estimates in light of the pandemic; WPP and Publicis announced global hiring freezes. WPP, IPG, and Omnicom took additional steps to improve their liquidity while Tokyo-based Dentsu said it would revise its financial forecast when more information becomes available.

Spokespeople for all five companies declined to comment beyond their announcements to investors.

Some analysts said the coronavirus downturn would be longer and more pronounced than the last recession

This recovery will be a lot more challenging than in the 2008-2009 recession, when the holding companies didn't face such significant headwinds and had more ways to cut costs, said Michael Levine, senior analyst at Pivotal Research Group focusing on the internet and media.

Even before the pandemic hit, most analysts saw the best-performing holding companies, like Omnicom and IPG, having only 2% or 3% organic revenue growth this year.

Levine foresaw overall ad budgets being cut by 20% to 25%, citing slowdowns in ad revenue at Facebook, Google, and Twitter, with agency fees reduced by at least 10% to 15% in turn.

But Levine emphasized that agencies will still be getting work as brands need help adjusting their messages.

"You can see it visibly on TV; creative is getting re-deployed with a more coronavirus-appropriate message," he said.

JPMorgan predicts that COVID-19's worst effects will hit the ad industry in Q3 2020

JPMorgan was slightly more upbeat than Pivotal but still predicted agency revenues would dip around 6% this year on average.

Managing Director Alexia Quadrani put out a report Friday predicting Omnicom and IPG would post Q2, Q3, and Q4 organic revenue growth of -5%, -6.5%, and -2.0%, respectively.

The report stated that peak losses would probably be around half what they were at the deepest point of the last recession in November 2009, when Omnicom and IPG saw -11% and -14% growth, respectively, in the US. But Quadrani still anticipated that earnings per share would be down between 16% and 20% year-over-year for the two companies.

JPMorgan said advertisers could shift spending to digital platforms, mitigating the effects of a COVID-19 downturn, but another forecast, from UBS, predicted total digital spend would decrease by at least 10% to 15%.

JPMorgan also cautioned that its outlook might be too optimistic, especially if the US takes a turn for the worse and short-term demand for premium PR and rebranding services dries up.

The holding companies have taken steps to strengthen their balance sheets

Omnicom alerted investors that the pandemic could adversely affect the company, then announced that it would sell $600 million in senior notes to shore up its finances.

IPG withdrew its financial guidance for 2020, citing limited visibility into the market changes wrought by COVID-19. The company then followed Omnicom in offering $650 million in senior notes and set up a $500 million yearlong revolving credit to further strengthen its balance sheet.

Publicis Groupe also said it would pull its guidance and issued a hiring freeze.

On March 31, WPP pulled its guidance, froze hiring, suspended buybacks and final 2019 dividends for shareholders, and cut pay by 20% for its board and executive leadership committee for the next three months.

Morgan Stanley wrote that the hiring freeze was most significant because WPP has more than 100,000 employees and an annual turnover rate greater than 25%, so its hiring and retention expenses are greater than those of its rivals. The holding company hopes to save up to $1 billion for the rest of 2020.

Smaller ad holding companies have also taken steps to improve their finances.

Executives at MDC Partners including CEO Mark Penn purchased tens of thousand shares over the past week-plus, according to SEC filings, as its stock price recovered slightly from an all-time low of $1.02 on March 20.

An MDC Partners spokesperson did not respond to a request for comment.

Got more information about this story or another ad industry tip? Contact Patrick Coffee on Signal at (347) 563-7289, email at pcoffee@businessinsider.com or patrickcoffee@protonmail.com, or via Twitter DM @PatrickCoffee. You can also contact Business Insider securely via SecureDrop.