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International business drive Dentsu’s growth

February 19, 2016  | Subscribers Only

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The Japanese media giant Dentsu reported a 12.8% revenue gain to reach ¥818.6bn ($6.8bn), for the year ending December 31, 2015. This is the first time Dentsu reported financial results in a calendar year, in line to make comparison more easily and make the agency more international.   

Our analysis

Growth driven by international business in emerging markets, but home market is less impressive

Dentsu, the biggest media player in Japan and the fourth biggest globally saw a double-digit growth of revenue in all regions: APAC (excluding Japan), EMEA, and Americas with growth rates of 23.5%, 15.4%, and 24.6% respectively, according to IHS estimates. 

Dentsu’s core domestic business recorded much lower revenue growth at 4.9% year-over-year. This is a reflection of the stagnant advertising market in Japan, which grew a mere 0.1% in 2015, according to IHS data (see https://technology.ihs.com/569267/advertising-in-japan-lessons-from-the-most-mature-ad-market-in-the-world)

Revenue from Japan has traditionally accounted for more than half of the media group’s overall revenue, but this year is the first time Dentsu saw more than half of its revenue generated internationally. According to its last published figures, Dentsu’s international business generated 50.1% in 2015 revenue, up from 47.5% 2014. IHS expects this number to grow and anticipates Dentsu’s future strategic investments to focus outside Japan.

Continued investment in digital

Some other big media players have also released their financial results for 2015. The world’s third-largest France's Publicis reported organic growth 1.5% in 2015 with growth driven by good performance in North America. New York-based Omnicom reported worldwide revenue of $15,134m, a decline of -1.2%. WPP and French Havas have not yet reported earnings, but in the first nine months grew 6.5% and 18.1%, respectively.

A key area for all agencies in 2015 was making smart investments in online advertising and other digital capabilities. Dentsu has become a lot more acquisitive in the last year with more than 30 acquisitions. This is very similar to the world’s largest advertising agency, WPP, but is significantly higher than other global agencies, which Havas, Omnicom, and Publicis had less than 10 acquisitions each for the same period. Half of Dentsu’s acquisitions were digital businesses and the majority of the acquisitions were made by the Dentsu Aegis network. Its big buy of UK-based Aegis Group in 2013 for $5 billion helped it to expand its global business, which previously accounted for only 15.0% of its total revenue. 

Dentsu has already seen a gradual increase share of digital advertising for its total revenue, from 27.0% for FY2013 (ending March 2014), 30.0% for FY2014 (ending March 2015), and 34.0% for FY2015 (year ending Dec 2015). This is in line with other agencies. WPP’s direct, digital and interactive revenues contributed over 37% to total revenue for the first nine months of 2015, up 9.8% in constant currency terms and up 6.9% like-for-like.

IHS expects the Japanese advertising agency to grow its revenue by 7.4% in 2016, driven by the Summer Olympic Games in Brazilian Rio and the US Presidential elections. Digital will be a key driver of this growth and IHS forecasts digital revenue to account for 39.0% of all Dentsu’s business by the end of 2016.

Research by Market
Media & Advertising
Category
Advertising
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