Interpublic Group (IPG)

Global advertising conglomerate Interpublic Group (NYSE:IPG) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 6.4% year on year to $2.32 billion. Its non-GAAP profit of $0.33 per share was 26.9% above analysts’ consensus estimates.

Company Overview

With a history dating back to 1902 and roots in the McCann-Erickson agency, Interpublic Group (NYSE:IPG) is a marketing and communications holding company that owns agencies specializing in advertising, media buying, public relations, and digital marketing services.

The sector is on the precipice of both disruption and growth as AI, programmatic advertising, and data-driven marketing reshape how things are done. For example, the advent of the Internet broadly and programmatic advertising specifically means that brand building is not a relationship business anymore but instead one based on data and technology, which could hurt traditional ad agencies. On the other hand, the companies in the sector that beef up their tech chops by automating the buying of ad inventory or facilitating omnichannel marketing, for example, stand to benefit. With or without advances in digitization and AI, the sector is still highly levered to the macro, and economic uncertainty may lead to fluctuating ad spend, particularly in cyclical industries.

Interpublic Group competes with other major advertising holding companies including WPP (NYSE: WPP), Omnicom Group (NYSE: OMC), Publicis Groupe (Euronext Paris: PUB), and Dentsu Group (TYO: 4324), as well as with consulting firms like Accenture (NYSE: ACN) that have expanded into marketing services.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $9.33 billion in revenue over the past 12 months, Interpublic Group is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s challenging to maintain high growth rates when you’ve already captured a large portion of the addressable market. To accelerate sales, Interpublic Group likely needs to optimize its pricing or lean into new offerings and international expansion.

As you can see below, Interpublic Group’s 1.7% annualized revenue growth over the last five years was sluggish. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Interpublic Group’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Interpublic Group’s organic revenue was flat. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Interpublic Group reported year-on-year revenue growth of 6.4%, and its $2.32 billion of revenue exceeded Wall Street’s estimates by 15.8%.

Looking ahead, sell-side analysts expect revenue to decline by 6.7% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Interpublic Group has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average operating margin of 13.1%.

Analyzing the trend in its profitability, Interpublic Group’s operating margin rose by 1.2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Interpublic Group generated an operating profit margin of negative 1.8%, down 10.2 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Interpublic Group’s EPS grew at an unimpressive 7.3% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.7% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Interpublic Group’s earnings can give us a better understanding of its performance. As we mentioned earlier, Interpublic Group’s operating margin declined this quarter but expanded by 1.2 percentage points over the last five years. Its share count also shrank by 4.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Interpublic Group reported EPS at $0.33, down from $0.36 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Interpublic Group’s full-year EPS of $2.74 to shrink by 2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Interpublic Group has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 13% over the last five years, quite impressive for a business services business.

Taking a step back, we can see that Interpublic Group’s margin dropped by 17.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Interpublic Group hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 20.7%, impressive for a business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Interpublic Group’s ROIC averaged 2.7 percentage point increases each year. This is a good sign, and we hope the company can keep improving.

Interpublic Group reported $1.87 billion of cash and $4.21 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.67 billion of EBITDA over the last 12 months, we view Interpublic Group’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $79.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Interpublic Group blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid quarter. The stock traded up 2.3% to $24.49 immediately following the results.

Updated: May 23, 2025 at 12:01 AM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Interpublic Group.

We cheer for all companies serving everyday consumers, but in the case of Interpublic Group, we’ll be cheering from the sidelines. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its projected EPS for the next year is lacking. On top of that, its cash profitability fell over the last five years.

Interpublic Group’s P/E ratio based on the next 12 months is 8.9x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $34.27 on the company (compared to the current share price of $24.06).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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