Businesses are shifting ad budgets online, with digital spending rising to 73% of the $1.1 trillion global total in 2024, driven by video, influencers and mobile optimization.

Stagwell (STGW) operates as a digital strategy and consumer insights firm, helping companies strengthen their marketing and media efforts.

Over the past year, Stagwell has steadily improved its client mix by securing larger, more strategic contracts.

Strategic acquisitions and affiliate partnerships have helped the firm achieve strong returns, but the market worries that ad cuts will hit results, expecting profitability to fall.

Long‐term contracts and a mix of services from communications to AI and cloud tools give Stagwell steadier cash flows and position it to capture more digital spending.

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Businesses are increasingly relying on digital channels for their advertising, and the spending is substantial.

In 2024, total global ad spending reached nearly $1.1 trillion, with digital advertising accounting for the lion’s share, at 73%.

This is a significant jump, with digital ad spending having more than doubled since 2019.

A major reason for this is the power of video. More and more, people prefer watching video content over static advertisements, making video a key tool for companies wanting to tell their story effectively.

Short, engaging videos on popular social platforms are proving especially good at capturing attention.

Alongside video, businesses are finding value in collaborating with online influencers. This approach helps them reach specific groups of people in a way that feels more natural and trustworthy.

As most people now use their smartphones to access the internet, companies are also making sure their advertising works well on these smaller screens, reaching customers wherever they are.

Looking forward, new technologies like interactive augmented reality and voice search are beginning to offer fresh ways for businesses to connect with people.

Overall, digital advertising is evolving as companies seek more effective and innovative methods to engage with their audiences in an increasingly online world.

Stagwell (STGW) operates as a digital strategy and consumer insights firm, helping companies strengthen their marketing and media efforts.

Over the past year, Stagwell has steadily improved its client mix by securing larger, more strategic contracts.

The firm booked more than $100 million of new business in each of three consecutive quarters in 2024, and top-25 clients now generate about $25 million in annual revenue on average, up roughly 30% over two years.

Those gains matter because deeper relationships with high-value clients tend to produce steadier revenue streams, more pricing flexibility and opportunities to cross-sell new services.

In turn, that makes the business less vulnerable to short-term shifts in ad spending.

One key area of improvement is the digital transformation segment, which is gaining traction after a period of flat or modest growth in early 2024.

By the fourth quarter, digital transformation revenue was growing more than 20% year over year, reflecting expanded budgets for technology upgrades and artificial intelligence projects.

Looking ahead, more companies are expected to spend on AI and related data tools, and Stagwell has already started rolling out new products such as GenAI-driven content platforms.

Early adoption of those tools could help the firm capture a larger share of future digital budgets as clients look to combine creativity with data-driven insights.

Another area that has begun to contribute meaningfully is Stagwell’s cloud segment, which accounted for about 10% of revenue by the end of 2024.

That slice grew more than 20% on an annual basis in the final quarter, and if current trends hold, it could evolve into a major growth driver over several years.

Beyond organic expansion, Stagwell has been pursuing targeted acquisitions. In 2024, the company added firms like BERA.AI, Team Epiphany and Sidekick Live, extending its capabilities in specialized markets and new regions.

Those deals have largely been financed with cash, a sign that management views its share price as undervalued and prefers not to dilute equity.

Meanwhile, more than 80 affiliate partners around the globe give Stagwell quick access to new markets without large upfront investments, positioning the company for further bolt-on acquisitions in areas with high growth potential.

All these factors combined with the firm’s asset-light model have enabled it to achieve 130% Uniform return on assets ”ROA” last year.

Despite this performance, the stock trades at just 8.4x Uniform P/E, signaling that the market remains wary of potential cuts in advertising budgets under mounting tariff pressures.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform ROA to decline to around 65% from 130% last year.

Stagwell has shown an ability to sign long-term contracts with top clients, fueling more predictable cash flows even when the economy slows.

Its mix of service offerings from core communications and media planning to newer AI and cloud tools also helps spread risk, since a dip in one area can be offset by gains in another.

And as more clients embrace digital transformation and content-driven marketing, the company is well-positioned to capture that spending.

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Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research