Despite Losing Microsoft Business, Wedbush Maintains Interpublich Group's Outperform Rating

Wedbush Securities has published a research report on Interpublic Group IPG after showing "cushioned" estimates despite losing some Microsoft MSFT business. In the report, Wedbush writes "Per IPG's 2010-K, Microsoft was a top-10 account in revenue in 2010, when the top client (which we believe was General Motors) accounted for 5% of revenue, and the top-10 in total accounted for 24%, implying that the average of clients #2-10 was 2.1% (or ~$140m for the year). We assume that IPG generated revenue for other work than media planning and buying from Microsoft in 2010, so that an estimate of roughly $100m being at stake for the media business under review seems reasonable. Alternatively, per Ad Age information on the 100 Leading National Advertisers, Microsoft ranks #32 with an annual budget of $1.1bn. Assuming roughly $1bn of billings was at stake in the U.S. and that 5% of this is the total agency compensation (higher than the 2% commission for mere media buying given that substantial fees for planning were involved), then the annual revenue impact would be in the range of $50m, implying that the total amount of agency revenue at stake in the review was in the neighborhood of $100m per year (~1.4% of IPG revenue). Thus, we see the 2011 impact as less than 50bps of organic growth, relative to our 4.5% estimate and the company's 4-5% outlook. In 2012, the impact would be roughly 80bps of organic growth, relative to our 4.0% organic growth estimate. Our sense, based on IPG's comments with its 4Q results as well as at our conference earlier this month, is that IPG's 2011 outlook likely assumed retaining the majority of the Microsoft business, and thus the account change makes achieving the full-year targets a bit more difficult, but still reasonable, in our view." Wedbush maintains its Outperform rating and $15 price target. Interpublic Group closed Friday at $11.92.