8. Stagwell, Inc. (NASDAQ:STGW)
Short Interest: 5.38%
Number of Hedge Fund Holders: 9
Stagwell Inc. (NASDAQ:STGW) is a digital-first global marketing company specializing in performance media and data, digital transformation, creativity and communications, and consumer insights and strategy. The company’s Brand Performance Network segment encompasses creative media consulting, unified media and data management structure with omnichannel media placement, and business-to-business marketing capabilities. The Communications Network, in contrast, covers a network offering strategic corporate communications, advocacy, public relations, investor relations, online fundraising, and other services to political and advocacy organizations and corporations.
Stagwell (NASDAQ:STGW) also specializes in digital storytelling, multi-cultural marketing, cultural relevance, and influencer integration. The company’s financial results for the first half of 2024 have put it in a solid position to exceed or make guidance for the year, strengthening its position for H2. Its strong financials have dramatically altered Stagwell’s industry standing, with consultants and industry leaders beginning to see it in a different light. Over the past months, it has received many more opportunities in the $10 million+ range. To put this into perspective, the company had one such opportunity last year. This year, it had 11.
The net new business in Q2 2024 reached $113 million, a record for the company. The Creative win of Cadillac and Chevy from General Motors was the most significant in the company’s history. Apart from General Motors, the company also managed major wins with Macy’s, Target, Delta Airlines, and Zales in Q2 2024. These wins are expected to continue in Q3, including Ferrero and Anomaly, making an extra $50 million in wins.
Revenue in Q2 reached $671 million with a 6% growth. This growth was led by a 42% growth in Advocacy, 9% growth in Creativity and Communications, 5% in Performance Media and Data, and 13% in Stagwell Marketing Cloud. Digital Transformation also grew by 2%. However, with demand from technology companies increasing as more AI projects come in, the company is confident in achieving double-digit growth.
Apart from acquiring companies, the company is also making considerable investments in growth and internal development. It spent an additional $10 million on new business pitches, travel and entertainment, its Cannes experience, and other one-time compensation expenses. Overall, it is spending around $20 million on these growth initiatives in a quarter, which are paying off with the new larger wins and growth in the Stagwell Marketing Cloud. On average, Stagwell’s (NASDAQ:STGW) top 25 clients are now spending around $24 million per annum with the company.
Choice Equities Capital Management made the following comment about Stagwell Inc. (NASDAQ:STGW) in its second quarter 2023 investor letter:
“Stagwell Inc. (NASDAQ:STGW) – Stagwell is another company likely to benefit from a potential increase in advertising budget spending. The company can most succinctly be described as a digitally savvy marketing agency. CEO Mark Penn has built the company through acquisition, starting with the first major platform acquired, which was media agency MDC Partners in 2019. With roots tracing to Penn’s experience in running polling agencies, Penn has pieced the business together through acquisition, with a focus on adding entities with targeted digital capabilities to help their clients succeed in the digital transformations of their marketing functions. The company counts Apple, Google, Amazon and Microsoft amongst its customers. As a relatively new entity, the agency is devoid of many of the low-growth business elements its older legacy-oriented peers encounter with their exposures to decaying media verticals.
Shares look attractively priced, trading at a single-digit PE multiple and offering a mid-teens free cash flow yield. The company has a highly cash generative model, offers attractive topline organic growth that is likely moving into the mid-teens going forward on the back of digital tailwinds and a ramp in political spending. Additionally, recent share repurchases have cleaned up the cap table, shrunk the float and should make the story easier to understand for investors who still may be unfamiliar with the name.”
