LT Weekly: Apr 17, 2025

The latest monthly survey conducted by Chief Executive and released on Monday seemed very timely and provided at least some perspectives on sentiment from the C-Suite, who are trying to navigate and steer the ship during the current macro storm of events. Big picture, based on a polling of 300+ CEOs in April, expectations for a recession jumped sharply to 62% (though a smaller 14% anticipate a severe recession). Overall, CEO sentiment has quickly moved quite negative over the last month. See below for the takeaways in the survey that we found most interesting and see link to survey if you would like to see more.

-> For reference, based on Bloomberg data, Wall Street economists foresee a 30% probability of a recession but as mentioned in prior editions, banks such as Goldman Sachs & JP Morgan have recently raised their recession probability estimates to 45% and 60%, respectively, hence the bias seems to be moving up. (link/link)

• 62% of respondent CEOs anticipate a recession or other economic downturn in the next 6 months, which is up from 48% who said the same in March
  • This is the lowest level since the early months of the pandemic in 2020
  • Digging a little deeper, 48% expect a mild recession (DOWN from 57% in March) BUT 14% expect a severe recession (UP from 3)

• View on tariffs? 76% of CEOs said tariffs would negatively or very negatively impact their businesses this yr
• Revenue outlook expectations have materially worsened since Jan
  • 49% anticipate rev to grow in 2025, which is DOWN from 84% anticipating the same in Jan
  • 44% expect reve to decline in 2025, which is UP from 9% anticipating the same in Jan

• Profitability outlook expectations have also materially worsened since Jan
  • Only 37% believe their companies’ profits will increase in 2025, which is down materially from 76% who said the same in Jan
  • 48% expect profits to decrease, which is up from 12% who said the same in Jan

The ripple effect of the ongoing trade and tariff policies are beginning to take shape, with companies adjusting operations and expectations in response. This was especially evident amongst the semiconductor Cos this week, as Nvidia and AMD reported multibillion- and multimillion-dollar impacts, respectively, from export restrictions on chips to China. While ASML maintained its long-term outlook, it also noted heightened macroeconomic uncertainty due to the tariffs. Industry estimates cited by US govt officials point to the semiconductor equipment industry potentially losing over $1bn annually due to these policies.

Beyond chips, consumer electronics companies are also navigating these added pressures. Apple accelerated $2bn in iPhone shipments to the US, while Sony pointed to macroeconomic factors when it annc’d its PlayStation 5 price increases across several international markets.

A multitude of companies are also adjusting their supply chains. Nvidia plans to produce up to $500bn of AI infrastructure in the US, while Apple is ramping up production in India and Vietnam. Additionally, broadband providers like Comcast and Verizon are introducing long-term price lock plans in response to rising consumer cost sensitivity.

In the midst of all this, Chinese Cos are also taking steps to support domestic exporters by facilitating local distribution which helped prop up the Chinese Tech stocks this week.

There are a lot of moving pieces to keep track of but likely the first of many more of these sorts of updates as we look in the weeks and months ahead …see below.

Semiconductor Cos Are Flagging Substantial Impacts To Top-Line 

Nvidia expects $5.5bn hit in FQ1 due to new limits on China exports (link/link/link/link/link)

• The US govt informed Nvidia on Monday (Apr 14) that its H20 chip would require a license to export them to China “for the indefinite future”
  • To note, no licenses for GPU shipments into China have ever been granted
  • The new rules are meant to address concerns that “the covered products may be used in, or diverted to, a supercomputer in China”
• Nvidia said that it will report ~ $5.5bn in charges during fiscal Q1 from “inventory, purchase commitments and related reserves” tied to the H20 line
• For context, China is Nvidia’s fourth-largest region by sales, after the US, Singapore, and Taiwan
  • NVIDIA has reportedly secured $18bn worth of H20 orders YTD, with a considerable portion of that demand coming from Chinese companies, including Tencent, Alibaba and ByteDance

-> NVIDIA fell -6.9% in reaction and is now down -24.5% YTD 

Advanced Micro Devices expects an $800mn hit from US chip restrictions on China (link/link)

• AMD said in a filing that it could incur charges of up to $800mn for exporting its MI308 products to China and other countries
• The new US license requirement, which applies to exports of certain semiconductor products, would hit inventory, purchase commitments and related reserves
• While the Co said it plans to apply for export licenses, it cautioned “there is no assurance that licenses will be granted”

-> AMD shares closed down -7.4% on the day of the announcement and is now down -27.6% YTD

ASML maintains guidance, but warns of incr’d macro uncertainty due to US tariffs (link/link/link) 

• CEO Christophe Fouquet said his conversations w/ customers supported ASML’s expectations that 2025 and 2026 would be growth years BUT “the recent tariff announcements have increased uncertainty in the macro environment”
  • Reiterated net sales and gross guidance for 2025 and 2026, but increased the range for Q2
• The Co also said it does NOT have plans to move more production to the US to limit the exposure of potential tariffs
• It also plans to pass more of the tariff costs onto customers – “the burden of tariffs from our vantage point should be allocated in a fair way…We think that those taking it in the United States should, therefore, take the lion’s share of that allocation”

Taking A Step Back – Trump’s Tariffs Could Cost US Semiconductor Equipment Makers $1bn+ Annually, Per Industry Calculations (link) 

• Lawmakers and administration officials reportedly discussed these tariff costs with chip industry execs and SEMI representatives (an intl trade group) in Washington as part of ongoing dialogue
• Each of the three largest US chip equipment makers – Applied Materials, Lam Research and KLA – may suffer an annual loss of ~$350mn related to the tariffs
• Smaller Cos, such as Onto Innovation, may also face tens of millions of dollars in extra spending
• The estimated costs included –
  • Lost revenue, primarily for missed sales of less sophisticated equipment to overseas rivals
  • Costs of finding and using alternative suppliers for the complex components of chipmaking tools
  • Tariff compliance costs, such as adding personnel to handle the complexities of following the rules

Cos Are Taking Costlier and More Complex Steps To Work Around The Tariffs

Apple airlifted $2bn worth of iPhones from India to the US ahead of Trump tariffs back in March, an all-time high (link/link)

• Apple airlifted 600 tons of iPhones using at least six cargo jets from Chennai, with most shipments landing in Chicago, as well as Los Angeles and New York to maintain US inventory amid a 26% duty on Indian imports
  • To expedite shipments, Apple lobbied Indian airport authorities to cut the time needed to clear customs at Chennai airport to six hours, down from 30 hours
• Apple’s suppliers Foxconn and Tata Electronics exported $1.31bn and $612mn, respectively, worth of iPhones
  • Foxconn, Apple’s main India supplier, exported smartphones worth $1.31bn in March, its highest ever for a single month and equal to shipments for Jan and Feb
    • Included shipments of the iPhone 13, 14, 16, and 16e models
  • Tata Electronics, another Apple supplier, saw March exports increase +63% from February
    • Included shipments of iPhone 15 and 16

Sony is raising PlayStation 5 prices in Europe due to a “challenging” economic environment (link/link/link)

• Increasing prices in “select markets” in Europe, the Middle East, Africa, Australia and New Zealand
• The “tough decision” was against the “backdrop of a challenging economic environment, including high inflation and fluctuating exchange rates”
• What do the hikes look like?
  • The Digital Edition is the main target for price increases, rising in all four markets (+€50 in Europe, +£40 in UK, +AUD $100 in Australia, and +NZD $89.99 in New Zealand)
  • Standard version (includes a disc drive) is only going up in Australia (+AUD $30) and New Zealand (+NZD $50)
  • PlayStation 5 Pro will remain the same price across all four markets
  • Price of add-on disc drive accessory is slightly decreasing
• Sony previously raised the price of the PlayStation 5 in Canada, Mexico, Europe, UK, Australia, Japan, and China back in 2022, due to “challenging economic conditions,” including global inflation rates and adverse currency trends

-> On a related note, shortly after Sony’s announcement, Nikkei Asia reported that an internal memo from a major Chinese supplier for Nintendo suggested that the upcoming $450 Switch 2 could also see its price go up (link)

Comcast has launched a 5-yr price guarantee for Xfinity internet customers to address “two significant consumer pain points – rising costs and transparency” (link/link/link)

• For the first time Comcast is offering new Xfinity Internet customers plans starting at $55/mo, locked in for 5 yrs w/ no annual contract required
  • Also includes a free unlimited wireless line for one year
  • Customers are free to cancel at any time
• Comcast internet customers will also no longer have a data cap if they are using one of these plans with a 5-yr price lock guarantee

-> This comes just a couple weeks after Verizon introduced a 3-yr price lock for all new and existing customers on myPlan & myHome (link)

Cos Are Adjusting Their Supply Chains As They Navigate Ongoing Tariff Changes 

Nvidia aims to manufacture Nvidia AI supercomputers entirely in the US (link/link)

• The Co plans to produce up to $500bn of AI infrastructure in the US via its manufacturing partnerships with TSMC, Foxconn, Winstron, Amkor, and SPIL over the next 4 yrs
• It has commissioned 1mn+ sq ft of manufacturing space to build and test Blackwell chips in Arizona, as well as AI supercomputers in Texas
• Mass production at both plants is expected to ramp-up in the next 12-15 months

Apple is reportedly trying to ramp manufacturing in India and Vietnam (link) 

• Apple has tasked key suppliers w/ increasing iPhone manufacturing in India to at least 50mn units this yr
  • The Co is also pushing to produce the majority of its upcoming US-bound iPhone model in India
• Apple has addt’lly directed suppliers to shift MacBook and iPad production for the US mkt to Vietnam
• But the Co is reportedly dealing with tightened Chinese customer screening, which have been ongoing for months and stalling the export of production equipment from China
• Another challenge is that India’s factory utilization is already at max capacity and key components, like connectors, metal cases, and mechanical parts remain most cost-effective to produce in China

Amongst The Tariff Chatter, China Tech Has Been Coming To The Rescue Of China Exporters 

• JD.com annc’d that it will spend Y200bn+ to help Chinese exporters sell their products in the domestic market in the coming year (link)
  • JD.com is sending sales and procurements teams to firms and will directly purchase products from them

• Alibaba’s retail brand Freshippo, Yonghui Supermarket and China Resources Vanguard are setting up “green channels” for Chinese exporters which allows them to sell their products in the supermarket, per Cailian reports (link)

It was a bit of an unusual print post the close on Thursday night ahead of a market holiday on Good Friday, but in the big scheme of things with all the market turmoil and uncertainty, Netflix’s Q1 performance was mostly steady as she goes, which in this environment is a big win. The streaming business has been more resilient than other sub-sectors during challenging periods and it looks like it is shaping up along those lines again as we look into 2025. The Co has not seen any negative consumer impacts from the macro environment, nor any advertising pull-backs (its small scale might also be helping to insulate the Co). This was the first qtr where Netflix stopped disclosing its subscriber numbers, so that is something to get used to, but Q1 itself was solid with slightly better than expected revenue along with much better operating margins. However, the margin upside was solely due to timing as some costs have shifted into H2 given the content slate. The existing FY 2025 revenue and operating margin guidance was reiterated. Notably in the qtr, the Co launched its 1P ad tech suite in Canada and the US, which should help drive more ad adoption and underpin a further ramp in ad revenue growth (the Co should roughly double ad revenue in 2025).

Mgmt didn’t provide any additional color around the WSJ report (link) citing its internal goal to reach a $1T valuation, earn ~$9bn in global ad sales, double its $39bn 2024 revenue, and triple its $10bn 2024 operating income by 2030 other than to sound a bit perturbed that this memo leaked. But it does paint a nice growth picture for years to come.

Overall, Netflix shares have outperformed YTD and likely remain a place where investors will feel comfortable, especially in these uncertain times. See below for our main takeaways from Netflix’s results and conference call.

-> The stock is trading +2.6% after hours after being up +5.7% this week; YTD, the stock is up 9.2%, easily outperforming the market

Solid Q1 Though Expense Timing Boosted Margins In The Qtr / 2025 Guidance Was Reiterated

• Q1 rev decel’d q/q but beat cons by +0.4%: Grew +13% y/y or +16% y/y ex-FX (vs +16% y/y or +19% y/y ex-FX
  • Driven primarily by membership growth and higher pricing, partially offset by F/X, net of hedging

• BIG seq step up in Q1 op margin: Easily beat at 31.7% vs cons 28.5% and yr-ago 28% (also up from 22.2% in Q4, 29.6% in Q3 and 27.2% in Q2), driven by rev upside and timing of expense spending

• Q2 rev guidance beat cons by +1.4%: $11.04bn vs cons $10.89bn
  • Implies seq accel in growth of +15% y/y or +17% y/y ex-FX
  • Will see the full qtr benefit from recent price changes and cont’d growth in membership and ad rev
  • Regionally – UCAN rev growth expected to reaccelerate in Q2 (did not specify by how much): Grew +9% y/y in Q1 vs +15% y/y in Q4 due to only a partial qtr impact from price changes, plan mix and the absence of ad rev from the Christmas Day NFL games

• Q2 op margin expected to come in a 33%, an ~6ppts y/y improvement
• REAFFIRMED FY rev and op margin guidance: “No material change to our overall business outlook since our last earnings report”   
  • Rev guidance range was a tad below cons at midpt: $43.5bn-$44.5bn vs cons $44.25bn 
    • At current F/X rates (with the recent weakness of the US dollar relative to most other currencies), currently tracking above the mid-point of 2025 rev guidance range
  • Assumes “healthy” member growth, higher subscription pricing, and a “rough doubling” of ad rev, partially offset by F/X net of hedging
  • Continuing to target 29% op margin for FY and will be lower in H2 due to content expense ramp: Q3 and Q4 tend to have a heavier slate, which in turn will also lead to higher sales and mkting expenses to support the slate

Have Not Seen Any Negative Consumer Impacts From The Macro 

• Paying close attention to consumer sentiment but based on what they are seeing, there is “nothing significant to note”
  • Retention is stable and strong despite the strong Q4 paid net adds
  • Have not seen big changes in plan mix
  • Most recent price changes have been as expected

• Entertainment has been resilient in tougher economic times and having the low-cost ads plan in their largest markets also provides resilience to the business
• The environment doesn’t change how they think about price increases: The Co has been able to keep a “positive fly wheel” even in challenging environments
  • Recent pricing increases have performed “in-line with expectations”: Including in the US, UK, and Argentina
  • Announced price increase in France, which is factored into 2025 guidance 

Netflix Has Also NOT Seen Softness In Its Advertising Business But Its Small Size Might Be Providing Insulation

• “Keeping a close eye on the marketing place but aren’t currently seeing any signs of softness from their direct interactions with buyers”
  • Actually to the opposite “we’re seeing some positive indicators from clients as we approach our upfront event”
  • But Netflix’s relatively small size in ads vs the big ad pie “provides some insulation to market shr shifts right now”

• The Co rolled out their proprietary ad tech suite in Canada and US (will roll out in the remaining 10 mkts over the “coming months”), which will open up new demand
  • The roll-out thus far has gone well though they are still in the middle of it
  • The biggest benefit is enabling more flexibility to how advertisers can buy; An improved buyer experience makes it easier for advertisers to transact
  • Overtime, the 1P platform will help with more programmatic availability, provide more enhanced targeting, leverage more data sources, and offer more measurement and reporting capabilities

• Continue to expect to roughly double ad revenue in 2025

The Addressable Market Remains Large & Can Support Future Growth

• Netflix reaches “a minority of their potential addressable market… we believe we’ve got plenty of room to grow our engagement, our revenue and our profit”
  • “We’re less than 10% of TV hours for an audience or a connected household’s perspective”
  • “We’ve still got hundreds of millions of folks to sign up”
  • “And from a revenue perspective, we’re about 6% of consumer spend and ad revenue in the countries we serve in the areas that we serve”

• Going after 80% of TV time that neither Netflix nor YouTube has today…that is an “immediate opportunity”

Content Strategy Remains Consistent 

• No incremental comments on appetite for sports content: The live events strategy (sports and non-sports) is unchanged
  • Live events is a relatively small part of content spend and only 200bn view hours which is also small, but “not all viewing is equal” and it helps with acquisition and retention
  • Intend to grow live outside the US
  • WWE RAW is performing well and has been on Netflix’s global Top 10 list every week

• There is a lot of demand for animation, so the Co wants to keep focusing here: They have had some hits and misses but are still learning
• Continue to test new formats 
  • Licensed four episodes of the toddler learning series Ms. Rachel, which has consistently been in the global Top 10
  • Debuted S2 of Inside, a reality show from the Sidemen

• It didn’t sound like the Co has plans to move into short form and USG but that they could expand podcast content
  • “The lines between podcasts and talk shows are blurring”

The Co Is Finding Ways To Improve The Member & Creator Experience Via AI

• “There is a ton of excitement on what AI can do for content creators”; Jim Cameron says that movies can be made 50% cheaper and I think there is a bigger opportunity to make movies 10% better”
  • Using AI to do set references for previews, VFX sequence prep, shop planning, etc. that makes the process better
  • Smaller projects now have access to VFX which they didn’t have before

• AI plays an important role in discovery and recommendations and there is still room to go with this: The buzziest titles drive <1% of viewing so discovery and recommendations “are critical to unlock the value of the content spend”
  • Still see more room for improvements
  • The Co is testing a new, simpler home page that will be rolled out later this year
  • They are also building interactive search based on gen AI

Gaming Is Still A “Multi-Yr Iterative Journey” And A Big LT Oppty

• The Co has learned “quite a bit”
• Focused on what has been working –
  • Immersive narrative games based on their IP
    • Squid Games Unleashed, one of their biggest games to date, will have an update for the newest season
    • Thronglets, which is their Black Mirror based Tamagotchi style game
  • Mainstream established titles (like GTA) and will launch more of those
  • Games for kids (just annc’d Peppa Pig game)
  • Also experimenting w/ socially engaging party games

• Spending levels on gaming will remain measured until they have confidence they will earn a compelling return: It is still a small % of their content budget
• Mgmt still sees this as a large LT oppt

There were what seemed like an avalanche of sell-side analyst price target revisions this week so we decided to take a deeper look into where expectations are being revised down the most and, in limited cases, revised up. Overall, among our LT Universe of TMT/Consumer stocks w/ $1bn market caps and at least 10 analysts covering the stock, 55% were hit with sell side consensus price target cuts over the course of the last week, though there were a handful of price target increases which positively impacted 11% of our Universe.

• A few call outs for the biggest cuts to consensus PTs – 
  • Omnicom, PayPal, and Shopify topped the list of the largest decreases; Of those, the Street is least bullish on PayPal with only 51% Buy ratings in general

• Which companies saw consensus PT increases?
  • Warner Bros Discovery and Netflix were among the limited number to see this trend

• In general, advertising, retail/toys/ecomm, and travel were well represented on the list of largest PT cuts

• What about changes to Buy ratings over the past week? There were not as many changes to ratings as there were for PTs but a few things stood out –
  • Equinix and Target had the largest cuts to # of Buy ratings
  • A couple of the YTD winners like AT&T and American Tower resulted in some analysts becoming more cautious from here
  • Despite the ad agencies’ PT’s being cut over the past week, analysts actually moved more constructive on the group from a ratings perspective

Earnings have begun in the advertising sector with holding Co’s Publicis and Omnicom both reporting results, but with mixed reactions. Publicis’s organic revenue growth rate of +4.9% headily surpassed consensus expectations and even when factoring in uncertainty stemming from macro concerns, mgmt. was highly confident that the Co will hit the full year 2025 organic growth range of +4-5% as new business wins will offset any weakness in other areas.  Mgmt highlighted that they have not missed guidance in 5 years which gives investors a level of confidence.

Omnicom, on the other hand, slightly missed Street projections for organic growth (+3.4% vs cons +3.6%) and lowered the bottom end of its FY 2025 organic growth guidance by 1pps to a new range of 2.5-4.5%, to be “conservative”.

Neither Publicis nor Omnicom has seen a pull-back in ad spend at this point and both stress that marketers know they still need to spend in order to support, defend, and grow their brands, even during tough times. But that spend does become more targeted in periods of uncertainty, so the mix could certainly be impacted. With that said, Publicis was also vocal about the “wait & see attitude” with respect to IT consulting spend, which has indeed been impacted.

Lastly, another big catalyst for the sector is the OMC/IPG merger which is still expected to close in H2 of this year. Publicis sees this as an opportunity for new business wins while OMC mgmt dismissed the notion that they will lose clients on the back of the merger and characterized this notion as “nonsense”.

Overall, this is the first of many updates and datapoints regarding overall advertising budgets, and business has not fallen off a cliff. However, we’d expect to hear more examples of where ad spend is being tabled as this macro uncertainty persists.

-> Publicis shares rallied +3.6% in reaction to earnings while OMC fell -6.2% (though during a strong down day in the markets as well); For the week, Publicis shares are up +1.5% while OMC is down -3.1%.

Publicis Lead Upside On Q1 Organic Revenue Growth While Omnicom Slightly Disappoints

• PUB: +4.9% organic growth beat cons +4.5% even with “incr’d macroeconomic tensions” & tough comps: This is an accelerated rate vs the 5 yr CAGR of +4.5%; Currency had a net positive impact of 200bp
  • Verticals
    • Connected Media (~60% rev): High single digit increase in organic growth
    • Intelligent Creativity (~25% of rev): High single digit increase in organic growth
    • Technology (~15% of revs): Mid-single digit decline in organic growth
  • Regions
    • US (63% of net revs): +4.1% organic (+6% ex Sapient) and on the top of +5% y/y last yr
    • Europe: +2.7% organic (+5.2% ex Sapient) following +6% in Q1:24
    • Asia Pac: +4.8% organic, w/ China +9.3%, largely driven by mkt share gains despite macro uncertainties

• OMC: +3.4% organic growth slightly missed cons 3.6%: Due to strong growth in Media & Advertising and Precision Marketing disciplines (66% of revs combined); FX decr’d reported rev by 1.6% which was less than guidance of 2-2.5%
  • Verticals
    • Media & Advertising: +7.2%
    • Precision Marketing: +5.8%
    • Public relations: -4.5%
    • Healthcare: -3.2%…working through loss of Pfizer and 1-2 minor accounts
    • Branding & Retail commerce: -10%… due to uncertain mkt conditions impacting both new brand launches & rebranding projects and a slowdown in M&A
    • Execution & Support: +1.9%
    • Experiential: -1.5%

• Regions
  • US (~50% of rev): +5%
  • Latam: +15%
  • Europe was mixed
  • Asia Pac saw growth (China was only 2% of rev in 2024)
  • Declines UK, ME and Africa

• Adj EBITDA @ 13.8% was a tad ahead of cons 13.7%; Adj EPS beat by +3

Pressure On IT Consulting Has Accelerated But Brands Still Need To Spend Even In Times Of Uncertainty, Though There Could Be Some Pullbacks

• PUB: Seeing a “wait & see attitude” for IT consulting firms BUT have not yet seen pullback in marketing spend budgets as clients need to spend to sustain and win mkt share
  • On CAPEX – the “wait & see attitude” that has been reflected in every IT consulting firm, incl Sapient (which is down mid-SDs), has only accelerated due to lack of visibility (i.e., clients are waiting to see if there is more visibility before starting to invest)
  • On OPEX (spend on mkting budgets) clients continue to invest b/c they need to sustain and win mkt share but mgmt is confident they can offset any future cuts with new wins
    • March was their best month and the Co is still seeing momentum
    • It is too early to talk about April but the macro uncertainty is “rising by the day” so there “could be some reduction across some industries through the rest of the year”
    • But with the strong Q1 and material new business wins, they are confident to offset potential cuts and hit their guidance
    • Clients’ “mood” is “definitely cautious”, but they are also “very competitive”, and are looking for opportunities to grow despite the uncertainty
    • “It’s all about being more targeted”…”and being more connected w/in the media to be more efficient, and it’s all about measurement, which makes, again, the role of data so important”

• OMC: Mgmt is “assessing the implication of these events to determine how they will affect our clients and our business” BUT has not seen specific client actions of cuts to spending yet
  • Clients are seeking flexibility during these periods of uncertainty but still need to invest in their brands: “In past periods of uncertainty, our clients must continue to compete for share in a dynamic marketplace by investing and leveraging the strength of their brands and increasing and actively expanding their connection with customers”
    • But have NOT seen any specific client actions taken to date
• The Advertising media and CRM businesses “remain strong”: “We didn’t change the forecast on those”
• The Events business is more exposed: “If we had doubts, it was really more in the events business, as companies probably get a little bit more conservative”

Despite Potential Headwinds In Spend From Macro, Publicis Remains Confident In Its Current FY Organic Growth Range Guidance While Omnicom Tweaked Down Its Guidance To Be “Conservative”

• PUB: Remains very confident they will hit the FY guidance (4-5% organic growth vs the market avg of < 1%)
  • The 4% is a floor: “It factors in the current deteriorating economic landscape, including cuts in marketing spend as a result of the reduced client visibility in the context of US tariffs. But also a negative performance at Publicis Sapient throughout the year in-line with peers expectations”; Also govt contract is <1% of revs at group level
  • Having “record business wins” over the period gives confidence in FY guidance: New biz wins contribute 200bp to growth; These will offset any weakness due to macro
  • Organic growth could reach 5% if clients regain visibility, leading to fewer cuts in traditional spend and resumption of CapEx spend translating into an improvement of Publicis Sapient performance
  • Have strong track record of hitting guidance: “It has been more than 5 years that we haven’t missed a guidance and that we have always delivered the number that we promised”
  • Revenue visibility? Putting Sapient (a time and materials business) aside, ~2/3 of their biz is retainer-based and/or with good visibility today
  • Mgmt also reiterated a slight increase in margin for 2025 vs 18% in ’24, along with FCF projection of E1.9-2bn
  • Also expects a very “homogenous” yr w/ respect to organic rev growth in the 4-5% range for each qtr in the yr

• OMC: Lowered the bottom end of its FY organic growth guidance range by 1ppt to 2.5-4.5% “given the uncertainty of the current environment” though maintained adj EBITDA mrgn guidance of a 10bp incr y/y (from 15.5%): Estimate FX impact on rev to be -0.5% for Q2, -1% for Q3, and flat in Q4, which implies-1% reduction for the full yr 2025
  • “We are being conservative in lowering the bottom end”
  • Potential new business in Advertising Media and CRM businesses could get them to the top-end of guidance
  • “We were planning for a glass that could be half empty, but we’re personally striving for what we really believe and have believed for a long time that we’re optimistic and that it will wind up half full”

OMC/IPG Deal Close Timing Remains On Track & Publicis Expects To Benefit From A Shrinking Competitive Landscape 

• OMC/IPG merger remains on track for H2 2025 close
  • Received shareholder approval in March
  • Received approval from 5 of the 18 jurisdictions in the last 5 wks (incl from China where they had trouble before with the proposed Publicis merger)
  • Working through approvals w/Colombia, Brazil, Saudi Arabia, & Egypt (relatively small for the combined businesses)
  • Made progress on integration planning work, which will help the Co meet the $750mn run rate cost synergies target following the closing of the proposed transaction

• PUB mgmt believes the Co is “ideally positioned” to seize the opportunities of a shrinking competitive landscape in what is a growing sector
• “This 25% reduction of the competitive landscape is already having a material impact on our client decision on partners and will mechanically benefit us once the deal is completed”
• BUT OMC mgmt views competitor comments about them losing employees and clients as a result of the merger as “nonsense”
  • “We have not had any client of any significance that we’re in fear of losing because of the transaction (competitors are perpetuating this “nonsense” that they will lose people and lose account, etc)
  • “It’s very disruptive for the client to make a change, and especially in this environment, there will have had to be some underlying strategic reasons why they would go ahead and do that beyond the ones that had started that process already

A Couple Other Notable Comments

• Publicis mgmt. thinks that the sector is “undervalued”: “The marketing service industry we belong to is undervalued, despite the resilience showed during COVID and its ability to grow faster than GDP in the last year”
• OMC resumed its buyback 
  • After pausing share repurchases until the shareholder vote on March 18^th, expect to continue buybacks for the rest of the yr; For 2025, expect to return to an annual repurchase level of ~ $600mn

The antitrust dispute between Meta and the Federal Trade Commission (FTC) officially kicked off on Monday (April 14^th) with a non-stop stream of updates. Over the course of the next several weeks, Chief Judge James Boasberg of the DC District Court will decide whether Meta unlawfully maintained a monopoly in the market for “personal social networking services” by acquiring Instagram and WhatsApp.

Originally filed in late 2020, the FTC’s case was dismissed at first but revived after the agency submitted a more detailed complaint outlining Meta’s alleged anticompetitive behavior. This stage of the proceedings focuses on whether Meta violated antitrust laws. If Judge Boasberg rules in the FTC’s favor, a later phase will address potential remedies—most notably, the agency’s push to force Meta to divest Instagram and WhatsApp.

Separately, but related, the trial also comes the same week a Virginia court ruled that Google violated antitrust law in the ad tech market, which was also a key regulatory development along with Google now facing a £5bn lawsuit in the UK for abusing “near-total dominance” in the online search mkt.

See below for the highlights that came out of Week 1 of the trial. (link/link/link/link)

A Quick Refresher On How The Trial Came About

• Dec 2020 – FTC filed an initial antitrust lawsuit against Meta (then Facebook), alleging the company engaged in anticompetitive conduct
• Jun 2021 – Judge James Boasberg dismisses the case, stating the FTC failed to present enough evidence to prove Facebook holds market power
• Aug 2021 – FTC files an amended complaint, adding more detailed data on Meta’s user base and market positioning relative to competitors like Snapchat, Google+, and Myspace
• Jan 2022 – Judge Boasberg allows the case to proceed, noting the FTC had now “cleared the pleading bar” and could move into discovery
• Apr 2023 – Meta files a motion to dismiss the case again, seeking to avoid a full trial
• Nov 2023 – Judge Boasberg denies Meta’s motion, allowing the case to go to trial
  • However, he dismisses one FTC claim — that Meta restricted third-party developer access to maintain dominance

A Drilldown On What Happened In This Week 1 

• What is the FTC arguing? Meta abused its powers and acted as a monopoly by acquiring rivals to remove them as competitors
  • “Acquiring these competitive threats has enabled Facebook to sustain its dominance—to the detriment of competition and users—not by competing on the merits, but by avoiding competition,” the FTC said in a legal filing
  • The result, the FTC is arguing, has been lower-quality social media apps for consumers, as Meta prioritizes preserving its power and boosting its profits above all else

• What is Meta arguing? 
  • Meta is NOT a monopoly b/c it has never raised prices on consumers, noting that all of its major apps are free
  • Meta’s svs have evolved from being focused on friends and family connections to “more of a broad discovery-entertainment space”
  • Meta purchased Instagram and WhatsApp “to improve and grow them” and the quality of Meta’s apps “has improved on every objective measure”, pointing out Meta’s user growth over the years
    • Instagram grew far larger than Zuckerberg ever imagined: At the time of the deal in 2012, Zuckerberg hoped to grow Instagram from 10mn to 100mn users – it reached 1bn in 2018; Had Meta not bought Instagram, Zuckerberg says, “it’s very hard to know” how things would have turned out, which is a key challenge for the FTC to address
    • Meta is arguing that people use more of something when it becomes better, “that’s economics 101”
  • Zuckerberg argued that the FTC’s case involves the “incoherent parsing of competition” to make the case that Meta is dominant, but is deploying a social media market definition it created that excludes TikTok, YouTube and Apple’s iMessage
    • The FTC has NOT included TikTok or YouTube in the market where it says Meta has a monopoly, arguing that they are broadcast platforms rather than networks for connecting with friends and family
    • With TikTok and YouTube included, Meta’s share of the market drops below 30%, Meta has argued
    • And TikTok, in particular, slowed Meta’s growth “dramatically,” per Zuckerberg 

• What acquisitions are under the spotlight?
  • Purchase of Instagram for $1bn in 2012 (Before acquiring Instagram in 2012, Zuckerberg wrote in an internal email he sought to “neutralize a potential competitor”)
  • Purchase of WhatsApp for $19bn in 2014 (Ahead of Meta purchasing WhatsApp, in 2014, Zuckerberg wrote an email saying the messaging service represents “a big risk for us”)

• What is the outcome the FTC is looking for? If the FTC prevails, Meta could be forced to break up its $1.3 trillion advertising business through possible spinoffs of Instagram and WhatsApp
  • Prior to the trial kickoff, there were negotiation talks to settle, but they ultimately failed (link) –
    • In late March, Zuckerberg called the head of the FTC and offered $450mn to settle
    • But that was far less than the FTC’s $30bn demand and a fraction of the value of Instagram and WhatsApp
    • On the call, Zuckerberg reportedly sounded confident that Trump would back him up with the FTC, as he’s been developing closer ties to Trump (Meta donated $1mn to Trump’s inauguration and settled a $25mn lawsuit)
    • FTC Chairman Andrew Ferguson found the offer not credible, and wasn’t ready to settle for anything less than $18bn and a consent decree barring Meta from anticompetitive practices
    • As the trial approached, Meta upped its offer to close to $1bn, which was ultimately not accepted and led to the kicking off of the trial
• Timeline: The trial is expected to last several weeks and it could be months before a ruling is issued

Some Other Interesting Revelations Were Flagged At Trial

• Meta offered to buy Snap for $6bn back in 2013, but the offer was rejected (link)
  • In court, Zuckerberg said “for what it’s worth, I think if we would have bought them, we would have accelerated their growth, but that’s just speculation”

• In 2018, Zuckerberg considered spinning out Instagram due to concerns over the rising threat of antitrust litigation against Facebook, according to an email that was presented during the trial
  • “And I’m beginning to wonder whether spinning Instagram out is the only structure that will accomplish a number of important goals,” Zuckerberg wrote in the email
  • “As calls to break up the big tech companies grow, there is a non-trivial chance that we will be forced to spin out Instagram and perhaps WhatsApp in the next 5-10 years anyway. This is one more factor we should consider”
  • Zuckerberg also wrote that, ​​”while most companies resist break-ups, the corporate history is that most companies actually perform better after they’ve been split up”

• In 2022, Zuckerberg proposed “wiping” everyone’s Facebook friends to boost the platform’s relevance (link/link)
  • He thought that if everyone’s friend lists were deleted and they had to “start again”, it could get them to engage more with the platform.
  • Zuckerberg felt that Facebook’s “cultural relevance is decreasing quickly”, and he proposed starting the plan with a smaller country and seeing how it went
  • Others at Meta, including the head of Facebook, Tom Alison, pushed back on the plan, and ultimately, the strategy was never implemented.

• Meta has considered creating an all-ad feed on Instagram (link)
  • Zuckerberg suggested that Meta has contemplated introducing a feed consisting entirely of ads.
  • “I think we have discussed it at different points but I don’t think we have done it,” he said.

Also There Was Another Big Antitrust Ruling In Big Tech This Week… Google Was Found Guilty Of Breaching Antitrust Law In AdTech (link/link)

• A court in Virginia ruled that Google had violated antitrust law by “willfully acquiring and maintaining monopoly power” for the sale of ads on independent websites across the internet
• In its case, the govt argued that Google leveraged its dual role in the market to inflate prices and edge out competitors
• Google may be compelled to break up significant portions of its advertising technology business — specifically the tools it uses to control both the buying of ads by advertisers and the selling of ad space by publishers
• The ruling was the second time in a year that a US federal court had found that Google had acted illegally to maintain its dominance (link): Another federal judge ruled in August that the company had a monopoly in online search and is now considering a request by the Justice Department to break the Co up
• ALSO, across the pond, Google is facing a £5bn lawsuit in the UK for abusing “near-total dominance” in the online search mkt to drive up prices (link): The UK Competition Appeal Tribunal filed a class action lawsuit alleging that Google used its market position to limit the ability of rival search engines to compete, which is turn strengthened strengthening its own position in the online search advertising market
  • Google called the case “yet another speculative and opportunistic case” and said that it plans to “argue against it vigorously.”

Also noteworthy this week were a couple of updates on consumer media usage and viewership stats that we thought were worth highlighting. First, PQ Media published a report forecasting that after a rebound in 2024 due to the elections and summer Olympics, global consumer media usage is expected to slightly decline by -0.3% in 2025, which would be the first decline since the 2009 Recession. Below we outlined some of the other key trends and expectations from this report. (link)

Also related, based on Nielsen’s March 2025 The Gauge report, The Roku Channel took the top spot among free ad-supported streaming TV services in the US with 2.2% of all streaming activity for the period. Tubi secured 1.9% shr and while Pluto TV used to take <1% shr, the services is now bundled with Paramount+ and, combined, accounts for 2.3% shr of all streaming activity. More broadly, YouTube maintains its position as the leader across all streaming platforms, accounting for 12% viewership. (link)

PQ Media Forecasts The 1^st Decline In Media Usage Since The 2009 Repression

• Global consumer media usage (digital and linear media channels) ROSE +2.4% in 2024 to an avg 57.2 hrs per wk, which is a rebound from a sharp decline in 2023 due to Federal elections in 15 of the top 20 mkts and the summer Olympics in France
  • Digital media usage incr’d from 37.3% share in 2023 -> 39.7% in 2024 (now accounts for 50%+ of consumption in 11 of the top 20 mkts)

• BUT expected global consumer media usage to DECLINE -0.3% in 2025, the first since the 2009 Recession…
  • Consumption has reached saturation in major developed markets like the US
  • Expect deceleration in discretionary spending on media devices and content in 2025
  • Possible recession due to tariff wars

• …And then tick up again in 2026
  • Media usage is expected to rise in even years (elections, major international sporting events) and decline in odd years (fewer elections, less impactful sports events)

• Given the new AI-generation who have been intro’d to digital media at an earlier age, the firm anticipates the use of linear media platforms & channels will continue to decline at a more rapid rate each yr
• Other 2024 global media consumption stats –
  • The avg global consumer spent 8.17 hrs/day w/ media in 2024, up from 7.36 hrs in 2019 (in some markets, such as Japan and the Netherlands, daily media usage exceeded 12 hrs/day)
  • Ad-supported media accounted for 52.7% of time spent in 2024, down from 55.5% in 2019
  • Men used media more than women globally at 58.29 hrs/wk vs. 57.02, respectively
  • The Greatest Generation (born before 1945) used media the most @ 98.37 hrs/wk, while the m-Gen used media the least @ 31.73 hrs/wk
  • Mobile video posted the highest gain of the 22 digital channels that PQ Media monitors, up 16.7% in 2024, while OTT (including VoD, PPV and DVR) viewing is the most used digital channel at 8.77 hrs/wk

• Continued strong adoption of AI chatbots
  • Alibaba’s Quark is now China’s Top AI app, surpassing ByteDance’s Doubao, DeepSeek (link/link)
    • Quark has ~150mn MAUs worldwide, followed by ByteDance’s Doubao w/ ~100mn and DeepSeek with ~77mn, according to Aicpb.com, which tracks the popularity of AI products
    • In March, Alibaba restructured Quark, powered by the Co’s Qwen reasoning models, which are designed to think before responding to queries, making them very good at complex tasks; Alibaba said it could help with academic research, document drafting, image generation, and more
    • A separate report released in early March by VC firm Andreessen Horowitz ranked Quark as the 6th-most popular AI app globally by MAU, just behind Baidu’s AI Search and trailing OpenAI’s ChatGPT and Microsoft’s AI-enhanced Edge browser
  • ChatGPT has likely hit between 800mn-1bn users – “doubled in just weeks,” per OpenAI CEO Sam Altman (link/link)
    • At a TED Conference, when asked about how many users are on the platform, Altman had said ““I think the last time we said was 500 million weekly actives, and it is growing very rapidly”
    • TED curator Chris Andersen then said “You told me that it like doubled in just a few weeks” to which Altman said “I said that privately, but I guess…That’s ok, no problem. It’s growing very fast”
    • Altman followed that by saying “something like 10% of the world uses our systems, now a lot,” which would bring the number closer to 800mn users
    • Much of that growth has been in the last several months, with the release of several products that have gone viral, including its March 25 introduction of a new image generation feature which creates images and videos in various styles

-> Separately, but related, there has been strong speculation that OpenAI is working on its own X-like social network; While the project is still in early stages, reports suggest that an internal prototype focused on ChatGPT’s image generation that has a social feed (link/link)

• US startup funding hits highest level since 2021, per Pitchbook (link) 
  • US startups raised $91.5bn in Q1:25, up +116% y/y to the highest level since Q4:21
  • For the second straight qtr, investments in AI startups made up more than half of total funding, rising to a record 71% in Q1
  • BUT while investments rose, # of deals fell 25% to 3,003 as more money went into fewer very large rounds including –
    • Anthropic’s $4.5bn raise
    • AI chipmaker Groq’s $1.5bn financing
    • OpenAI’s planned $40bn funding (has reportedly raised $10bn of that through a SoftBank-led round from investors including Thrive Capital, Microsoft, Altimeter Capital Management and Coatue Management)

• Lyft enters the European market through acquisition of taxi app FREENOW for $200mn (link/link) 
  • Founded in 2009, FREENOW is a ride-hailing platform headquartered in Germany and has been jointly owned by German automotive Cos BMW and Mercedes-Benz since 2019
    • The app is available in 150+ cities across 9 countries, including Ireland, the UK, Germany and France
    • Beyond traditional taxi and ride-hailing services, FREENOW also offers other mobility options including e-scooters, e-mopeds and e-bikes
  • There will be no immediate changes to FREENOW’s customer experience, but “over time, new benefits will be made available to FREENOW drivers and riders”
  • Once combined, the 2 Cos will serve 50mn+ combined annual users
  • The transaction is expected to close in H2:25
  • The acquisition is Lyft’s most significant expansion outside N. America, nearly doubling Lyft’s TAM to 300bn+ personal vehicle trips per year and increasing annualized Gross Bookings by ~€1bn
    • Up to this point, Lyft has only operated in the US and Canada