Two of the three major advertising agencies in Korea reported deteriorating results for the second quarter of this year. This is due to trade disruptions caused by tariffs from the United States, which negatively impacted performance at overseas branches in Europe and the U.S.
According to the advertising industry on the 19th, HS Ad's consolidated revenue for the second quarter of this year was 98.9 billion won, and its operating profit was 461 million won. This represents decreases of 20.7% and 92.5%, respectively, compared to the same period last year.
Gross profit decreased by 7.73% compared to the same period last year, recording 53.7 billion won. Gross profit is the amount remaining after subtracting the cost of sales from revenue, and the advertising industry considers the gross profit excluding expenses paid to partners for production and other services as a key performance indicator.
INNOCEAN recorded consolidated revenue of 519 billion won and an operating profit of 36.4 billion won for the second quarter of this year. This represents decreases of 0.58% and 0.67%, respectively, compared to the same period last year. However, gross profit increased by 3.1% compared to the same period last year, reaching 241.5 billion won.
Cheil Worldwide recorded consolidated revenue of 1.1188 trillion won and an operating profit of 92.1 billion won for the second quarter of this year, marking increases of 2.7% and 4.4%, respectively, compared to the same period last year. Gross profit increased by 7%, reaching 483.8 billion won.
The sharp decline in HS Ad's profits is attributed to poor performance at its overseas branches. HS Ad's revenue in the U.S. for the second quarter of this year was 18.3 billion won, a 42% decrease from the same period last year (31.7 billion won). Revenue in Europe decreased from 11.7 billion won to 6.9 billion won, falling by 41%.
In particular, the decline in operating profit relative to revenue was significant. This is because some project expenses were reflected in the second quarter while revenues will be reflected in the second half of the year, leading to a lag between revenues and expenses.
A representative from HS Ad noted that the impact of economic slowdown due to market uncertainty and the deferral of project results significantly reduced operating profit, stating, "The performance of projects is expected to be reflected in the profits of the second half of the year."
INNOCEAN also saw a decrease in overseas performance. Although INNOCEAN's gross profit in the European market increased by 7% compared to the same period last year, reaching 30.2 billion won, operating profit decreased by 5% compared to the same period last year, recording 5.9 billion won due to an increase in selling and administrative expenses from hiring more staff. Gross profit in the U.S. also increased by 2% to 128.5 billion won, but operating profit fell by 9% compared to the same period last year to 22.8 billion won due to non-affiliated volume and campaign delays.
The reason for the stagnation in the overseas advertising market is attributed to trade disruptions caused by tariffs from the United States and economic uncertainty.
According to the international advertising marketing research platform WARC, "The global advertising market is becoming increasingly uncertain due to trade tariffs, economic recessions, and tightening regulations, as major industries face setbacks," noting, "As a result, the market growth size is expected to decrease by $20 billion (approximately 27.8 trillion won) over the next two years."
WARC predicts that global advertising expenditure in 2025 will record a growth rate of 6.7%, revised down by 0.9% from previous forecasts.
Advertising agencies are focusing on expanding non-affiliated new businesses, aiming to reduce their high dependency on affiliated companies. As of 2024, the dependency on advertising volume from their parent company's affiliates for domestic corporations was 60.8% for INNOCEAN, 72.9% for Cheil Worldwide, and 70.13% for HS Ad.
INNOCEAN has recently seen growth in domestic performance as new clients like Coway and Nongshim increase their advertising partnerships, alongside existing non-affiliated advertisers like Netflix. Cheil Worldwide also plans to secure stability with revenue centered on existing affiliates while seeking high-profit growth opportunities through non-affiliated new projects.