All right, we'll get started. I'm happy to have back at the conference from Stagwell, Mark Penn, Chairman and CEO. Mark, thanks for being here.
Thank you.
All right. Mark, we are, we're at an interesting moment for the marketing industry. Significant AI-driven change, consolidation among some of your peers. We had the announcement yesterday that we'll get to, but how do you see Stagwell is positioned, and where are you most focused currently?
Well, I think we're strongly positioned for AI. I think AI and technology itself was at the core of why I created Stagwell when I was coming from being Chief Strategy Officer at Microsoft. What I observed was, in my work with the other companies, was that they were not tech forward enough, and they were not collaborative enough. On day one, we opened up really a unique engineering team that was supposed to engineer innovation within the marketing space. As AI really came along here, this team was now able to produce AI marketing products that really kind of are part of a whole pivot to our business, which is very strongly positioned with digital transformation, but now is making a number of headline products, specifically AI-based.
I think it's come along at a very good time for us.
You reported Q1 earnings at the end of April. As it relates to the macro, I didn't hear any red flags, but wanted to see if you could just update on this, what you're hearing from clients, how they're approaching media spend, just given all the crosscurrents in the economy. I don't know if it also makes sense just to touch upon a big cyclical event coming down the pipe in a month with the World Cup too.
Look, this really does appear to be the best economy from a marketing and advertising point of view that we've seen since 2022. 2022 was like when everybody came out of the pandemic.
Yeah.
It was an amazing year. I think we've had a couple of years or a year and a half when people were afraid of a recession all the time. I think what we're seeing now, I mean, if you look at the growth among digital advertising, it was really 14% last year. We're looking at close to 10% growth in digital marketing this year. Obviously you've seen linear come down. You've seen sports go crazy. You've seen gaming go crazy. I think there's a lot of good trends out there. This is not a time where I see our clients calling up and pulling back and holding projects. It's also not a time when they're rushing and hurrying up.
It's actually a surprisingly normal time in which I think people are putting out pitches, they are awarding the contracts, they are getting going. I think we're seeing a very normal economy out there by and large, believe it or not.
What about digital transformation? You know, Stagwell's continued growth here, I think is a contrast to some peers that, you know, maybe have described a pause in spending. What's getting your clients to finally commit or, execute to those projects like AI integration?
I think we've always been tilted to the last mile when it comes to AI. I'm sorry, when it comes to digital transformation. When you think about it, we really do everything that is designed for or touches the consumer, whether that's content management systems for newspapers or whether it's banking products, whether it's large scale websites for the NBC Olympics. What we're seeing now is that all of the companies need to infuse AI. It's kicked off an entire round of digital transformation that fits in very well because we also tend to be a, what I call a premium digital transformation company. A lot of the tech companies are our clients. We design a lot of the interfaces for the various products.
We have a very active design and then a kind of a build. We have about 1,500 engineers. We are finding for our level of digital transformation at absolutely a record pipeline. That's in addition to the AI products that we're bringing to market.
Stagwell has been pushing up in scale with marketers. I think you last highlighted the average, top 25 client was just at about a $30 million relationship. How do you think about moving this higher, both organically and then, you know, through the new business process?
I think part of the theory of Stagwell, and particularly as we were built, you know, in the early years, largely through acquisition, is that we would achieve a bigger and bigger scale. When you look at what's happened to the rest of the industry, there's really only four companies now that can carry out a global marketing campaign. One of them was just here. There's two others, and then there's us. What we're seeing is a growth in the opportunities of larger scale, and we're now in 51 countries with 12,000 people. We don't need 100,000 people to be at the scale to take on the kinds of contracts that were coming in. I think you've seen, as I said on the earnings call, a record new business amount.
I know I've got three or four pitches that are coming to fruition in our favor that are just about in signing stage, that will be announced over the next two weeks. I think we're in a very favorable position to continue to scale up the business with larger and larger assignments, precisely because there's now only four of us that can really handle these kinds of assignments.
How does that consolidation, I guess, impact the RFP environment? You know, as a result of some of the deals we've seen, have you seen an acceleration in the pipeline at all?
We've definitely seen, you know, when I started really four or five years ago, the pipeline consisted of $300 million. You know, we hit $1.4 billion, gonna probably hit $1.6 billion in pitches. We generally do not participate in about 20% of them, then we win about 1/3 of those that we participate in. What we're doing now is we're doubling the forward sales team. We're trying to find every avenue for new pitches so that we continue to grow the business, you know, you know, on the top line as fast as possible.
I think you had flagged government as a potentially large category with some breakthroughs recently. Just what shifted in your ability to compete for some of those large contracts and just keeping in mind some sizable deals are coming up potentially in the next couple of years.
Yeah, again, we started about one year, one and a half years ago and said, Look, we don't really have any government contracts because the collection of companies that we brought together typically would not have thought to participate much, you know, maybe an economic development contract or two. Now that we've come together at a scale at about close to $3 billion in sales, that we qualify for virtually every government contract at every level for digital transformation contracts, for tourism contracts, for lottery contracts, for all these communications, for website redesigns. We recently had a meeting in our office with 20 state directors of really the, you know, how consumers interact with state governments.
There's a tremendous move now for you to be able to interact, believe it or not, with your government on an efficient, you know, on an efficient level, and we're really well-positioned for that. We're seeing, recently, it hasn't been officially announced, but I know the contract's signed, as I said, like a big state tourism contract, a $60 million contract across five years. It's just like the tip of the iceberg. We've shown that we can go out, we can start to win these things. This year we're gonna see there's the post office contract up, there's a Navy contract up, there's some major Department of Defense contracts up.
There's a lot of contracts up that we're gonna play in, and hopefully by next year we'll have a pretty thriving, pretty good and thriving government practice.
Is that a global opportunity? I mean, you mentioned tourism, lottery, all categories that apply in, you know, European countries opportunity.
There's nothing like the U.S. economy, there's actually nothing like the U.S. government. I think there are a couple of opportunities. We've done Swedish tourism, but the level you know, when you're looking at these U.S. government contracts and something like recruitment is a $1 billion contract. There's just opportunities here in the U.S. that are so much more open and so much more available, I think. They haven't had a new competitor like us come along again in a long time.
I guess separate to bringing clients in, you've also refocused on sort of protecting the backdoor, so to speak, right? Improving retention. What are the key points to highlight there?
I think when we did an analysis of what was happening with business, we're looking and you say, 'Well, okay, we have all this net new business. Why aren't we growing organically faster?' The answer was that the business was going through a transformation. In fact, we were losing very few clients of the larger clients, but what we really saw was a lot of drop off in the small clients. Now what we've put in is a kind of active client accountability project, where every one of these small clients will have an account executive assigned to them and tracked, using AI, to really make sure that nothing's falling through the cracks and that large and small clients are getting the same level of service.
We've already seen a 4- or 5-point decline in the first quarter of the drop off of the churn. Our goal is to get the churn down about 10 points.
Okay. On marketing services, Mark, you made an interesting comment, kinda recently that premium creative is alive and well as opposed to creative by the pound, as you termed it. You know, curious how you would contrast that, and maybe we could just talk to the outlook for your core creative agencies.
Well, I mean, take a look at something like the Super Bowl. I mean, the Super Bowl is kind of the largest creative advertising festival, right? In which there'll be 50 to 60 advertisements faced off, and there'll be maybe five to 10 winners. We're only 1% of the market, but we're basically about 10% of the Super Bowl. We're about 20% of the winners. We're way over-indexing, and I think that gives clients confidence in that. I think what we're also seeing is that, you know, I kind of recently went through some of the RFPs we're doing, and I said: Well, do I believe that AI could have come up with ideas like this? The answer was no.
You know, the top-level creative ideas that tend to really be successful are just not things that are easily thought of, that really they're somehow orthogonal to what people think and believe. We have had several, what I call fourth generation post Madison Avenue agencies like 72andSunny and like Anomaly and like Doner, Code and Theory and F&B, all of which I think have a different take and direction of creativity and they're offering what I call a premium creativity, which means that creativity in big marketing can make a big difference, just as targeting can make a big difference. It's getting the right ad to the right person at the right time.
What we're finding is that some of the other majors have gotten so focused on media that they tended to de-emphasize the premium creative, and that's creating an opportunity. Right now, if I look at the 72andSunny and Anomaly, they're both at the zenith of what they've ever been in terms of size and growth in people.
On the by-the-pound creative, and maybe this is more of an industry kind of question, right? Are there kind of challenges to that piece of it?
Yeah. I think that the Kinda see a premium creative generally will create a platform that can then be rolled out and copied and duplicated internationally. That's where if you, if you had something, well, I'm not gonna say like, but like a Media.Monks, something or like a Hogarth that was primarily about multiplying ideas across thousands of pieces of content. That's where AI really comes in. We didn't really have operations like that. That really doesn't affect us in the same way that it would, it would affect people with those kinds of operations. That creative by the pound still exists, is going to exist, but it's going to be primarily driven through AI.
Can we unpack the AI piece of this a bit more, right? You made the comment about the Super Bowl ads, not something that, you know, could have been generated by AI. I'm curious what you're actually seeing in the market, right? Investors, you know, you can engage in conversations with them, and imaginations can kind of run wild about where AI is going and what it can displace. Like, what are you actually kind of seeing in the market? Where are there, okay, this is legitimate real concern versus, hey, this is completely overblown?
Well, look, when you analyze technology, too much time is generally spent on how it is gonna make what you do more efficient, and not enough time is generally spent on how it is gonna let you do things you've always dreamed of doing but couldn't do before. What happens is the whole slate of what you can do and can create kind of moves up, and it doesn't go backward. Yes, what you really see continually is the elevator operators disappear, the toll collectors disappear. In my survey business, the survey interviewers disappear. More concentrated brainwork gets, you know, focused at the top. I've been through this kind of technological change in the survey business, where we started with 63 people to do a survey, and now we do it with three. We still have surveys.
We still have the same margin. Some of them are less expensive than they would've been if we were going door to door with people. There's a wider marketplace, a greater TAM, you know, as a result. The surveys we do now are kind of light years ahead of the surveys that we could have done. The same thing in visuals and creation in the movies. Nobody's going back and figuring out how to do silent films. Okay. They move up to another level of creativity and imagination that now can be generated through these new tools.
I think that on the one hand, we do believe there's about 15% to 20% of labor that can be simplified or would be removed, you know, in some of these processes, particularly in production as opposed to creation, particularly in some of the targeting and following of media campaigns. The high-level intellectual work still remain that has to be utilized to differentiate you, still has a significant place in the stack here. And that's where I think there's a limit of what AI can do, just as there was a limit of what the PC could do, a limit of what the internet could do. I mean, these are not unlimited opportunities here for technology to displace everything.
There are unlimited opportunities to have a new frontier of what creative can be, of what we can create, how we can make it more personal, and how we can have ads that are considerably more effective.
I guess with that transition to the extent, you know, there's a cost-plus model that exists in the industry as some of that labor comes out, and how does that almost by definition impact the revenue associated with some of these?
Technology costs have to go in, right? To that, what I found and the best example I do have is the survey biz. What happened, you know, we did more surveys. Surveys came down a little bit in price. The margin reestablishes itself anyway because nobody's gonna do it for free. The businesses just wouldn't exist. Since there is need. If you look at this, what'll happen is if advertising becomes more effective, people will do more advertising. The actual We will have an industry growth, you'll have somewhat more to do, you'll simply Maybe things will be, like I said, a little less expensive.
You know, already the kind of the advertising and production piece of it is only a few percentage points of what the media costs. There's really not much balance sheet savings for people in this area, in any event. A lot of risk, right? Because these intellectual areas here of having to get the targeting right and the strategy right and the creative right, can make like a six to 10 times difference in how effective the marketing campaign is. If everybody has the same AI tools, then what's really gonna differentiate you? What's gonna differentiate you is superior strategy, superior more, more engaging, creative, everybody's gonna have reasonably similar targeting.
I wanna see if we could discuss Stagwell's media operations. I know there's some client losses that I think either you cycled out in Q1 or you will soon. Look, you know, as it relates to media, we've seen notable consolidation here. There's been some retrenching by competitors. How do you see yourself as positioned? It'd be great also if you could kinda speak to the AppLovin partnership that you announced earlier this year.
Yeah, I mean, we do $5 -6 billion kind of replacement, but 75%-85% of that is online, is online. When it comes to online, scale is less of a factor. I think what we're doing is we're upping the game in the technology. We've created the Stagwell ID Graph, we're utilizing our research companies and our platform companies to create really additionally useful data that then we can take the Stagwell Agentic Targeting System , apply that with customer data to enhance it, give people access to the ability to place media campaigns as though they always dreamed of placing, but couldn't really place. We're taking a technology-first approach, particularly oriented in better targeting in the performance marketing.
We've hired, actually the CEO was just complimenting me on somebody who used to work at Omnicom, who's really heading up our media-savvy. We have a crack team, so I really think we're well-positioned in this increasingly performance marketing world to compete, you know, more strongly in media. Unlike the other companies that are really almost 100% dependent on media, you know, our digital transformation and our political are really our two biggest growth areas. Over here, our creative is coming up. The last piece of the puzzle for us is kind of getting stronger growth in media. We're gonna have very strong double-digit growth in GALE, which combines media, creative, and loyalty in a very unique kind of way.
I think, I think on the AppLovin, you know, partnership, I think that again, it's just really the, you know, I think you see a lot of growth in gaming, and we wanted to make sure that those gaming, advertisement placements were really opened up to a broader market constituency. I think that the partnership really does that.
Obviously, there was some news in the marketing and ad tech space yesterday with Publicis agreeing to acquire LiveRamp. I'm curious your reaction there, any impacts to, you know, how you think about your positioning and maybe you could just frame how Stagwell and what you're building is different than maybe what Publicis is looking to do with their purchase.
Sure. I think number one, it confirms that our technology-first approach really is the right approach in the AI world in order to be successful. I think in terms of the LiveRamp purchase itself, it'll be interesting to see how you can take a platform whose core value is neutrality so that everybody felt comfortable exchanging data and put that into an environment where it's no longer perceived as neutral. I think some of the other holding companies will be concerned about running their data through LiveRamp. More importantly, let's say I'm over at one of the auto companies, and I know that a client of Publicis is my competing auto company. I'm gonna be really concerned about putting my data there.
Taking the neutrality out of that or, in terms of its ownership structure, even if it de facto exists, I think is gonna be a significant hurdle. I think in terms of our positioning, again, I think we're strongly positioned to add the AI applications that really need to be added so that it can be used by the clients, and that's our primary focus and approach. Our strategy here is not just to create internal products that we use and deploy as part of our operation, say, to do your media or develop your creative, but to have tools that live on top of the tech stacks of the clients themselves so that they can run, own, and operate and even use other holding companies.
We really have to, I think, be in the business of providing the tools, that companies can use in order to really take advantage of AI, marketing in this transformed world.
I think since we talked last year, there's been something of a, of a strategic pivot, maybe a de-emphasis on M&A and towards build-out of AI applications. I wanna kind of talk through each of some of the key offerings that you're bringing to the market. Just what's the broader kind of opportunity you've identified here and, you know, why this sort of build rather than buy approach?
Yeah. Look, I think number one, we always have, since day one at the creation of Stagwell, this tech team. I was coming out of Microsoft. Our chief AI officer ran data and analytics at both Microsoft and IBM. I think that's illustrative. You look at kind of Code and Theory keeps winning top business transformation agency. We really are staffed with engineering talent that can really understand and apply AI and can build, whether it's on the Palantir Foundry or elsewhere, these applications. Then on top of that, we really understand how marketing works. By applying that specialized knowledge, we believe that we can be really the leader in AI marketing applications in the AI world.
I think that is a realistic expectation based on our history, experience, and the talent that we have available to us.
I wanna touch upon some of the offerings here. Maybe we could start with The Machine. You stated you think every company will eventually need its own marketing operations operating system. Maybe we could just touch upon the platform. Why is this something that would be kind of attractive to enterprises as opposed to say, you know, services from, you know, vendors like Adobe or say, Salesforce?
You know, we're finding a lot of interest out there. The marketing operations operating system or MOOS, as I like to call it. Right? It's really kind of the windows of the system. It enables you to run, whether it's a targeting system. Well, first of all, it enables you to put all your agencies and vendors together. It enables you to do things like let me have a creative brief and then send out the creative brief, get the creative responses, have them scored, and then make the final decision. When we call it The Machine, it takes all of these intermediary needs that you have to run a marketing system or marketing domain and basically runs them with the assistance of AI.
We're building it in a way that if you're gonna run the Stagwell agentic targeting system or you're gonna run one of 20 different apps in your tech stack, that they'll be integrated into The Machine, and it will be on your tech stack. We're finding, you know, we're already in four or five installations, some of them in actually forward tech companies themselves, because we're gonna have the specialized knowledge and training to, I think, build the best ones and to get there first.
There's also Stagwell Agentic Targeting System, or SATS. I think that could be sold alongside The Machine or separately. Stagwell Search Plus, I think that's an application for search optimization within AI. You know, what's the key value add for clients here in terms of maybe utilizing their own data and maybe just can we touch upon Palantir's role?
Sure. We announced a partnership with Palantir. We're co-developing with two engineering teams, really what we've temporarily called SATS, although I think it's gonna be the brain. What the brain does is it'll take first-party data, it will combine it with the Stagwell ID Graph and additional third-party data, put it into a single agentic system. Let's say you say, "Well, okay, let's take a look at all the customers that have bought back to school last year." Really in a minute you'll have that subset of customers. You'll say, "Well, what brands did they buy? What did they buy in the Northeast, and what did they buy in the West? How should we change our stocking of various products to be more in line with consumer demand?" Right?
I might say, "Well, okay, let's take a look at the lookalikes within 5 miles of each of our stores." To have these things done within minutes, as opposed to hours and weeks and analyst time, is a tool that really marketers rarely have ever had at their disposal the way that this system works. We think that there's a tremendous market for this with adding unique proprietary data as part of the elements of it. We think it's. Look, remember, I ran marketing at Microsoft, so I know what we had and we didn't have, and was one of the advanced tech companies in the world, right? Let me tell you, when you're in one of the advanced tech companies in the world, they don't spend a lot of time working on your internal marketing, okay?
That's why there's actually an opening to sell this even to the biggest of tech companies.
I guess regarding these enterprise tools, how do you think about challenges or bottlenecks like sales infrastructure, selling cycles, putting into place kind of the necessary infrastructure to support the relationships once the product's sold?
Yeah. Let me just, let me just cover, also Search Plus now is basically a way to track and monitor how your brand is really perceived in an agentic world and also then how to improve when somebody doesn't go to Google Search or says, "Tell me the best TV I should buy for my room. I want a 50-inch TV," to make sure that your brand comes up in that and monitors that and then gives you ideas for improvement. We think there's a good marketplace for that. We're seeing early interest and adoption, you know, according to that. Sorry, your question here was?
It was really just about enterprise tools.
Oh.
Setting up the necessary sales
Yeah.
Support infrastructure.
I think that's where we are now. I think that's exactly what Stagwell's doing right now, which is that we believe we have our product structure. We have the main products that we're taking to market. We typically have been responding to RFPs and have like an RFP sales motion. We're now kind of putting into place a more of a classic software sales motion, and we are right now, I think, you know, beginning to hire. What we've done now is we've got like, you know, of the $25 million goal for this year, we've got about $12 million booked. We've got about a $20 million pipeline on the rest we built up, and that was basically on no salespeople.
We're kind of putting together the sales organization so that really within the next two months we'll be fully scaled to go out.
About five minutes left. If anyone has a question, feel free to raise your hand if you want. Got one here in the front. Can you just wait for the mic so that webcast can hear you? Great. Thank you.
Hi. I was curious, where does principal media buying fit in your ecosystem, if at all?
Again, not a major part. Principal media buying tends to be something that's more part of a large scale offline buying. We do have some of our own media, and so we have a large stake of RealClearPolitics. We have thousands of airport screens. We have a bunch of travel magazines as well as the Business Traveller. We have some owned and managed media, and we have an owned and managed media department, particularly in specialty areas like politics and travel. Principal media is not a substantial part of anything we're doing.
Mark, I wanna touch upon communications. We're in an on year for political, so interested to hear how you view the opportunity for your operations in 2026. It's early, but what about 2028? This will be the first election with two real primaries in, well, since 2016.
Yeah. Look, I think we're entering a political super cycle here. I think that when people look at it, I mean, we're looking at political races now that are spending $150 million a side. When I was actively engaged in those races, gosh, if you had $25 million, that was an amazing amount. You're seeing a sevenfold increase really in political spending. I think these midterms, I mean, everybody's talking midterms. Who ever heard of midterms like six months before? Nobody even knew they existed. People barely voted in them. You're seeing this tremendous increase in political consciousness.
We really have an operation in political low dollar fundraising, which is really the best and most advanced operation I think you'll see anywhere in terms of its ability to raise hundreds of millions of dollars. We also have a political campaign operation on the other side. We're invested. I think obviously I came out of a tradition, some of the political work. You know, I just think the skills that are deployed here are really first rate.
I think the economics of it are just at a scale that I only I used to be in politics and said, "If only we had the budgets of these CMOs, it would be amazing." Now I'm like, "If only, if only the CMOs had the budget of these political figures." I think you've seen a tremendous reversal in that, and I think that it is a growth area. By the time it gets to 28, I can't even imagine how much is going to be spent on the 28 elections and two primaries.
Is it only candidates? Is there You know, we heard earlier from some separate firms, the benefit from political about issue spending?
Yeah, no, it's issue spending. Of course, there's the whole, there's the whole, there's the campaign and then the PAC now. The campaigns have a shadow campaign that allows unlimited contributions, and then you can have a bunch of issues thrown in as well, and you can have referenda, and you can have all of these things. It all amounts to, you know, the tremendous increase in political interest. When the country, you know, when you think about it, politics is winner take all. When you're at 50/50, the value of the last vote that determines everything is like infinite. That's why you're in a situation where there's so much spending.
We're about out of time, so we'll end there. Mark, thanks so much for being here.
Thank you. Pleasure.