Doc, I decided to test your hypothesis. I looked at the stock performance of several major international ad companies during the last recession, the first time .coms figured into the picture: Omnicom Group (OMC), WPP Group (WPPGY), Publicis (PUB), Interpublic Group of Companies (IPG), and Havas (HAVS).
They all suffered major stock declines (50%+). This is indicative of the fact that their earnings dropped. Your particular department or focus area may have been steady, but you have to look at the total picture.
I can appreciate the time and effort you spent on such research. But I would be more inclined to know who or what industry they represent.
Again, if all suffered major stock declines this most likely parallels an overall decline in the stock market. Did billings/billables decrease by 50%? I bought Red Hat stock at about $7.5 per share, it dropped to $3.25, I later sold at $29.00. But this roller coaster ride mirrored the stock market in general.
I and my clients deal primarily in consumerables. Think cigarettes, NASCAR racing, alchoholic beverages, food stuffs, home improvement industry...national and international brands.
As you mentioned, diversification. If an ad company is heavy in one sector and that sector takes a major hit then that ad group may suffer. During the "dot com bubble burst" those that dealt primarily with the internet media probably took a massive hit.
The ad companies that depended on Enron and Adelphia most likely saw billable, revenue, and stock bottom out. Yet the utilities and media companies as a whole were not affected by these two fiascos. Same with Columbia Healthcare and another that escapes me at the moment...medicare/medicaid fraudulent billing, CEO's in federal prison. But the Healthcare industry as a whole faired well.
Isolated incidences can be the downturn of many an industry. If an ad agency is build upon one sector then they too stand to suffer and are vulnerable.
Additionally, one previous ad agency I used to free lance with suffered major set backs. Again, not sector or industry related but circumstantial. Their clients were Holly Farms bought out by Perdue Chicken, McLean Trucking who went bankrupt (pension fund robbed), RJ Reynolds forced buyout by KKR, Piedmont Airlines bought out by US Air, and controversial ABC (CBS?) Food Lion exposure.
With each of these circumstances, ad business went away from the immediate area...Perdue to Arkansas, US Air to Pittsburgh, RJR to Atlanta and Wachovia Bank went with them, and Food Lion plummeted. Phillip Morris and their ad firms did not suffer, nor did Bank of America, United Airlines, or Tyson Foods due to closures, buyouts, and mergers going on in their respective industries.
This particular ad company went from about $35mil in billings to perhaps $3mil. This was in the mid 80's. This was a publicly traded company as were all the corporations mentioned.
Needless to say, stocks for all these companies suffered set backs (buyer and buyee) but all rebounded in time.
What did all of these companies have in common? All were North Carolina based companies and their primary ad agency was local based. They went from 116 employees to perhaps 25-30.
So if you were to look up this particular ad agency you would see their stock plummet by perhaps 80% or more.
Yet, most of the corporations I know or other ad execs did not see a significant drop, unless it was the ones who handled the likes of eToys.com or other .coms that went belly up. Even then, they seemed to have pumped their final dollar into ad streams to attempt to add another day to the inevitable doom.
Some of your examples may have different and varying circumstances. I can not dispute your findings but I always do look at the big picture and the overall picture. And I know from personal experiences and from colleagues that many companies do not slash ad budgets. They may shift to different media or mediums, but no real significant ad cuts.
They operate on the premise of "out of sight, out of mind"
is not conducive to surviving a recession.
Granted...even in the toughest of times people will spend their last dollar on a pack of cigarettes or 6 pack of beer if they are so inclined. But look at the home improvement sector in the current situation. Housing sales will be down, new home inventory at an all time high, foreclosures up. But the likes of Lowes and Home Depot should prosper as people stay put, don't buy up, spend money on their current home. And usually appliance companies may see a tick up along with the likes of Best Buy.
Extravagant items, including high priced domain names, will see a down cycle as some will put off major purchases.
Of course, this whole matter about to unfold would be dependent upon job lose or gain, layoffs, and bankruptcies.
All in all, difficult to predict the future. History indeed repeats itself. These times here in the states may define a new time as personal debt is at an all time high, foreclosures are sky rocketing, and I think we are getting ready to see another bailout of the Savings and Loan industry.
We may be getting ready to write a new chapter in history.
Those that survive the tough times plan for the tough times and bank on it, just as they do for the periods of growth and expansion.
And so it should go in personal endeavors, savings, and investments as well.
Okay, so how does all of this add up in relation to the L-L-L.com market?
Like the rest of the economy and future markets, wait and see.
Now, back to the game.
