Stagwell Inc. Reports Strong Growth and Strategic Shifts

Stagwell Inc. ((STGW)) has held its Q3 earnings call. Read on for the main highlights of the call.

Stagwell Inc.’s latest earnings call painted a predominantly positive picture, with strong revenue and EBITDA growth, record net new business, and successful strides in digital transformation. The company’s strategic pivot towards technology, highlighted by a new partnership with Palantir and a surge in The Marketing Cloud revenue, underscores its forward-thinking approach. Despite challenges in the communications segment due to reduced advocacy work and broader industry headwinds, the overall sentiment remains optimistic, bolstered by cost-saving initiatives, share repurchases, and robust international performance.

Strong Revenue and EBITDA Growth

Stagwell Inc. reported impressive financial results, with overall revenue reaching $743 million and net revenue at $615 million, marking increases of 12% and 10%, respectively. The company’s ex-advocacy EBITDA saw a remarkable 23% year-over-year jump to $103 million, achieving the highest margin in two years at 18%.

Record Net New Business

The company achieved a record $472 million in net new business over the last twelve months, with top client relationships averaging $28 million. This indicates significant expansion and a strengthening of client ties.

Digital Transformation and Marketing Services Growth

Stagwell’s digital transformation efforts bore fruit, with Marketing Services’ total net revenue growing by 9% and digital transformation increasing by 12%. Organic growth was robust, with Marketing Services growing 6.5% organically overall and 9% in the U.S. market.

New Partnership with Palantir

A new partnership with Palantir was announced, aimed at building a groundbreaking AI-based audience platform. This collaboration is expected to generate hundreds of millions in new revenue, marking a significant strategic move towards AI technology.

The Marketing Cloud Revenue Surge

The Marketing Cloud segment experienced a dramatic net revenue growth of 138%, with a notable improvement in adjusted EBITDA margin from negative 30% to negative 4% year-over-year.

Strong International Performance

International operations contributed significantly to Stagwell’s success, with total net revenue growing by 25.9%, led by a 39.6% increase in the EMEA region.

Cost Savings and Share Repurchase

Stagwell is on track to deliver $80 million to $100 million in annualized savings by 2026, with $27 million already actioned. The company also repurchased $90 million worth of shares, reducing the share count by 4%.

Communications Segment Weakness

The communications segment faced challenges, generating $97 million in net revenue. The softness in PR reflects broader industry headwinds, including elongated pitch cycles and slower client decisions.

Reduced Advocacy Work Impact

A significant reduction in advocacy-related work impacted the communications sector, affecting overall growth.

Increased CapEx

Year-to-date capital expenditures totaled $72 million, with a focus on technology development rather than acquisitions.

Forward-Looking Guidance

Stagwell reiterated its guidance for the year, projecting approximately 8% total net revenue growth, adjusted EBITDA between $410 million and $460 million, and adjusted EPS ranging from $0.75 to $0.88. The company also aims for a free cash flow conversion rate of 45%. The strategic focus remains on adopting AI technology, with a significant shift from M&A to technology development, as highlighted by the partnership with Palantir.

In conclusion, Stagwell Inc.’s earnings call reflects a positive outlook, driven by strong financial performance, strategic technological advancements, and robust international growth. Despite some challenges in the communications segment, the company’s forward-looking guidance and strategic initiatives position it well for future success.