Alloy, Aegis Top BNET's Network Efficiency Ranking; WPP Slips

Alloy Marketing & Media held the top spot as the publicly traded advertising company that operates most productively, according to an analysis of financials by BNET. Alloy saw flat revenues in Q4 on higher operating expenses, demonstrating that owning the media you offer creative for (as Alloy does) will not make you immune to the economy.

The least efficient group was ValueClick, which earned only 37 cents in revenues in Q4 2008 for every dollar it spent on operating expenses.

ValueClick’s disastrous performance was due to a heavy write-down of goodwill, which it charged as an operating expense. Absent the charge, ValueClick would have topped the list, receiving $2.11 in revenues for every dollar spent on salaries and office supplies, and giving the company the odd distinction of being both the best and worst manager of its operating resources, simultaneously. (Valassis and Inventiv also incurred charges, see note below.)

Here’s the ranking:

• Company, Yield, Trend
• 1. Alloy, $1.55, down
• 2. Aegis, $1.32, flat
• 3. Alliance Data, $1.29, flat
• 4. Publicis, $1.23, up
• 5. Interpublic, $1.21, up
• 6. Omnicom, $1.15, flat
• 7. Havas, $1.14, up
• 8. WPP, $1.13, down
• 9. Lamar, $1.09, down
• 10. MDC Partners, $1.01, up
• 11. Valassis, 75 cents, down (1)
• 12. Inventiv, 54 cents, down (2)
• 13. ValueClick, 37 cents, down (3)
• Source: SEC and company filings.

Moving up into 2nd place on the BNET ranking is Aegis, whose efficiency was $1.32, trending flat.

WPP, the largest agency holding company in the world with revenues of $13.6 billion, appears to have paid dearly to acquire that status. In 8th place this quarter, it slipped from 5th place in Q3 2008. Its efficiency was flat from the quarter before, but down from previous quarters, so appears to be trending lower, at $1.13. WPP is also the most indebted of the large agencies. BNET previously noted that WPP chief Martin Sorrell has a reputation for winning with lowball rates and trying to figure out how to make a profit later — and the lowered efficiency coupled with greater debt would seem to underline that.

The BNET ranking is calculated by dividing revenues by total operating expenses. At most agency networks, the majority of operating expenses are salaries. The resulting yield tells you roughly how good the staff are at generating revenues for their company.

The ranking is, of course, flawed. An online business like ValueClick is very different from a billboard provider like Lamar, which may have high real estate costs. The “yield” thus gives you a good idea of which type of ad businesses remain strong and which are struggling. It is perhaps no surprise that web-based ValueClick (absent goodwill write-downs) earns double on its dollar what land-based Lamar gets.

Also, numbers of European companies such as WPP, Publicis, Havas, and Aegis are full-year yields because European companies do not break out Q4 results. This gives them an advantage in the ranking — most companies experienced reasonable conditions in Q1, Q2 and Q3 but saw a sharp drop-off in business in Q4. Q1 results due in three months may see a sharp shakeout among the Eurozone businesses.

The ranking was also expanded this quarter to 13 companies with the addition of Havas, ValueClick and Aegis. (Havas is currently considering a takeover bid for Aegis.)

Also noteworthy is the fact that four of the top 10 companies’ productivity are trending up despite the recession putting huge downward pressure on their revenues. Only three are trending down.

• See BNET’s previous network efficiency ranking:
• Alloy Beats WPP, IPG et al in Network Efficiency Ranking

(1) Valassis operating expenses included a $245 asset impairment charge. Absent that charge its yield would be $1.07 trending down.
(2) Inventiv operating expenses included a $268 million goodwill impairment charge. Absent that charge, its yield would have been $1.12, trending flat.
(3) ValueClick operating expenses include a $327 million goodwill impairment charge. Absent that charge, its yield would be $2.11, trending up.