Semiconductor Industry Slump Leads Samsung Electronics to Cut Marketing
Cheil Worldwide's Sales and Operating Profit Slightly Decline Last Year
Hyundai Motor's New Model Launch Boosts Innocean's Sales Surge
Major domestic comprehensive advertising agencies experienced mixed fortunes last year depending on the scale of advertising and marketing expenditures by their parent companies. Cheil Worldwide, affiliated with Samsung Electronics which faced a downturn in the semiconductor industry, saw a slight decrease in sales, whereas Innocean, led by the eldest daughter of Hyundai Motor Group which recorded record-breaking performance, showed significant improvement in results.
According to the advertising agency industry on the 23rd, Cheil Worldwide recorded sales of 4.1383 trillion KRW last year, a 2.7% decrease compared to 2022. On the other hand, Innocean's sales last year increased by 19.6% to 2.0929 trillion KRW, and during the same period, HS Ad also recorded sales of 548.3 billion KRW, up 3.37%.
In terms of gross profit, Cheil Worldwide also showed an upward trend. Cheil Worldwide's gross profit last year was 1.6189 trillion KRW, up 5.2% from the previous year. Innocean also saw its gross profit increase by 11.06% to 849.7 billion KRW during the same period. HS Ad did not disclose its gross profit figures last year. Advertising agencies use gross profit as a performance indicator instead of sales revenue. Gross profit is the amount remaining after subtracting the cost of sales from sales revenue, excluding payments made to production partners when producing advertisements.
However, looking at operating profit last year, Innocean and HS Ad showed growth, but Cheil Worldwide experienced a decline. Innocean and HS Ad's operating profits last year were tentatively recorded at 149.4 billion KRW and 26.4 billion KRW respectively, representing increases of 9.13% and 6.68% compared to the previous year. In contrast, Cheil Worldwide recorded an operating profit of 307.5 billion KRW last year, down 1.25% from the previous year.
Cheil Worldwide's poor performance is attributed to Samsung Electronics, its major affiliate, reducing advertising expenses due to the semiconductor industry's downturn. Samsung Electronics reportedly cut its advertising and marketing expenditures by more than 30% last year amid concerns over economic slowdown. As a result, securities firms also lowered their performance forecasts for Cheil Worldwide last year. However, the decline in performance was somewhat mitigated by increasing the proportion of non-affiliate clients and expanding digital business. Last year, Cheil Worldwide's non-affiliate business accounted for 30%, up 2 percentage points from the previous year.
Innocean's strong performance is believed to be influenced by Hyundai Motor Group, its parent company, launching new vehicles consecutively and increasing advertising. Innocean explained, "Stable affiliate campaigns continued with CES 2024 and facelift models of four car types (Sorento, Carnival, K5, Tucson)," adding that "(operating profit) achieved the 40 billion KRW level for three consecutive quarters due to upfront investments in digital and other personnel."
This year, as the advertising agency market recovers, major agencies are expected to improve their performance. This is due to increased advertising and marketing demand driven by large-scale events such as CES and the Paris Olympics. By company, Cheil Worldwide is expected to grow with Samsung Electronics' new smartphone (Galaxy) launches and the discovery of new overseas advertisers. Innocean is also expected to secure stable advertising volume as Hyundai and Kia prepare to launch new electric vehicles such as the EV3 and Ioniq 7.
Jisoo Jung, a researcher at Meritz Securities, said, "Since the cost-efficiency trend in marketing expenses of major advertisers is still maintained, short-term performance improvement expectations are low for Cheil Worldwide," but added, "With the expansion of product lineups by major advertisers and upcoming events such as the Paris Olympics and the U.S. presidential election in the second half of the year, the advertising industry is expected to recover, aligning with the 5% gross profit growth guidance for 2024."
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