Art & Commerce

Value Gap In the 12 months ending March 31, 1998, Omnicom had revenues of $3.3 billion and earned $235 million, net. Multiplying the recent price of the company's stock by the number of outstanding shares shows Omnicom is worth $8 billion. Is that a lot? For a conventional ad agency/marketing services company, yes. The absolute amount has never been bigger, nor has the valuation, expressed in terms of price/earnings ratio (about 34:1) or price/revenue ratio (2.4:1). The analysis is similar for Interpublic and WPP Group. But this is peanuts compared to the numbers in the interactive world. For example, Yahoo, which took in less than $90 million in the 12-month period, is worth $5.4 billion, according to the stock market. And Yahoo's primary source of revenue is advertising. The "old line" companies are puttering around on the new media turf, but the "magic" valuations of the pure-play new media companies have not rubbed off. If Omnicom were valued at the same multiple of sales that Yahoo gets, each Omnicom share would be worth $1,180 (it's $48 now) and the company would be the third largest on the Fortune 500 list ranked by market capitalization. - Alan Gottesman (westendal pobox.com) is principal of West End Consulting.


THE GOTTESMAN FILE
Investors are placing significantly higher values on unprofitable, ad-driven, Internet-related media than globe-spanning, profitable ad-driven agencies.

.....Company.....12-month revenue*.....Market value.....Value/market ratio
.....Yahoo.....$88.....$5,359.....60.90
.....Excite.....$39.....$1,326.....34.00
.....Lycos.....$66.....$952.....14.42
.....Interpublic.....$3,239.....$7,841.....2.42
.....Omnicom.....$3,289.....$7,893.....2.40
.....WPP Group.....$2,862.....$4,639.....1.62

Source: West End Research. Dollar figures in millions. *4/1/97 to 3/31/98