Conference Transcript - STGW 2026-05-13

Laura Martin, Analyst — Needham & Company

We're going to get started here. I'm Laura Martin. I'm the Senior Media Analyst at Needham & Company, and I'm going to introduce Jason. Okay, Jason Reed is the Chief Strategy Officer at Stagwell, where he leads growth strategy, long-term vision, innovation, new product development, market expansion, and strategic initiatives. He previously spent a decade at Stagwell's chief investment officer, where he led more than 50 transactions and contributed to over $2 billion of revenue after earlier roles in technology, media, investing, and strategy, including Microsoft. Okay, welcome, Jason. So I want to start where we left off. We were on an AI panel earlier today, and in the middle of that, you said, oh, I want to talk about this later, Laura, but I think Wall Street's got this totally wrong. And I'm like, okay, I want to start there, because it sounds like you have something to say on that. So let's start with that comment you said on the last panel.

Jason Reid, Other

Well, I think the question was about what does consensus have wrong, right? And I think this will come around eventually, but we're in this world where I think every time a new AI product comes around, it deems to be an existential threat to some industry, you name it. And I think we're currently in that cycle. I think we're coming out of it from a marketing standpoint. But, you know, I think of, when I think about the business that we're in, the business that Stagwell is in, we serve, you know, and I think about the investable universe as a whole. There's consumer products, there's enterprise services, and there's government. These are the three big spenders. Consumer spends money, enterprises spend money, and governments spend money. Now, we serve the enterprise. And if you break down the enterprise, the enterprise spends money in a few different You've got sales and marketing. You have operations and logistics. you have research and development. And let's say I'm a believer, right? Let's say I'm a believer in this age of abundance, right? Where everything's going to become infinitely cheaper and accessible to humanity, and we're going to flourish. Now, so what happens to the enterprise? Let's think about that for a second. So there's a type of product that doesn't require much marketing, let's say bananas, for example. Now, bananas can go to a very low price point if you believe that we can optimize their efficiency and operations and logistics, and we can deliver a banana very cheaply to a consumer. Then there's marketable products, right? Which is, we don't market bananas, but we do market Hermes scarves, right? And marketing is a core component of that business. Now, take that business, right? You would assume that every line item of that spend, right, gets operationalized and made very efficient, which means that, in theory, profit margins for Hermes scarves should go through the roof, right, in theory.

Laura Martin, Analyst — Needham & Company

Okay, because costs would go down.

Jason Reid, Other

Costs go down, and pricing doesn't, right? So what happens? What would happen was up to the point that Hermes would spend $100 to market a scarf, up to the point where the marginal cost of, the marginal profit would get down to zero, right? So now if I made your entire organization more efficient, that means you could arguably double the amount you spend on marketing. So that means now I will spend $200 to acquire the last customer because my operation is that much more profitable. And so this goes to like an old economic theory called Jevin's Paradox. You may have heard of it or not. It's the theory that if something becomes cheaper, you use more of it because the ROI still remains the same. Now, does the cost to acquire your first customer drop? It certainly does, right, because marketing itself becomes more efficient. But overall, the curve just shifts. And dollars, if you look back historically in time, during these cycles, marketing generally tracks GDP, but there's a nice little bump that happens when the technology hits because people can spend more dollars on marketing. So I think that's being really missed in the industry that we're in, in the sector, in the part of the world that marketing exists. Does that make sense?

Laura Martin, Analyst — Needham & Company

No. I mean, just real time.

Jason Reid, Other

Let me just react.

Laura Martin, Analyst — Needham & Company

So one of the things that I think happens in real life is this idea of substitutes. And if the substitute is going to go and halve the price, because some substitutes are priced as cost plus. So substitutes today have an infrastructure cost, and they're marking it up 10%. And in your scenario, in theory, a lot of these infrastructure costs are going to be halved, let's say. Well, okay, now that cost of that, let's call it a substitute product, is half the cost structure plus 10%. I don't think Hermes keeps its $200 price umbrella if the relative cost is too big a gap. Some of the people that today, if the gap is only $100 difference, they're buying the Hermes scarf. But if it gets to be $150 difference, then no, they won't go up to the $2. So you're going to get price pressure on the umbrella price product, that the gap stays the same. They don't get to just keep their price point when substitutes go down by price 50%.

Jason Reid, Other

Well, you imagine that there's substitutes for marketable goods, which that's a different debate. I do not think that this is the different, I'm making a differentiation between commodity goods, which are bananas, and this is an extreme example, and Hermes scarves, which are not commodity goods. You are correct. 100% the more commoditized a good becomes, but there was never any marketing dollars spent there to begin with. Marketing is spent on consumer goods that are non-commoditized. Commodity goods are never been worth it.

Laura Martin, Analyst — Needham & Company

But I don't think they're priced – they may be priced inelastic, but they're not completely price insensitive. So if everything that Hermes is competing against halves in price, it is the gap that consumers spend.

Jason Reid, Other

That's the assumption that I would challenge. I do not know a world in which Hermes became a more efficient company and dropped the price of its goods. It's never happened.

Laura Martin, Analyst — Needham & Company

But I'm thinking of substitutes. That a scarf is a scarf. Yes, some people will pay $100 gap in premium, but they won't pay $150 gap in premium.

Jason Reid, Other

They'll trade down. In the history of time, you could argue that there's been substitutes for scarves, but not Hermes scarves, right? The higher the, this is a nuanced debate, the higher the level of scarcity for that product, it's like a Ferrari. And it's on a spectrum, right? So it just hasn't happened historically. I don't know why it would happen now.

Laura Martin, Analyst — Needham & Company

Only if you think that that total addressable market gets smaller and smaller, because there's fewer and fewer people willing to pay a bigger and bigger premium for that Hermes scarf to have that kind of, maybe the top half a percent does, but today it's the whole full top 1% because there's not a biggest difference between the cheap substitute.

Jason Reid, Other

Well, perhaps in the age of abundance, we all become infinitely wealthy, and the actual consumer base or scarves without jobs goes up. Who knows? That's a different scope.

Laura Martin, Analyst — Needham & Company

Well, I do think you're making a point, which is we do have sort of this bifurcation in the capitalist purchasing base that there are people who really do care about all their brands, and there are plenty of people that are substituting out for Amazon for $30, right?

Jason Reid, Other

But that's the core of marketing, making a brand desirable.

Laura Martin, Analyst — Needham & Company

Distinctions, yeah, and 40% penetration of Apple iPhones, which in theory they do as much as a Samsung, but people are walking around with $1,400 iPhones. So definitely leisure and aspirational products are deeply penetrated in American society. Okay, so this question is perfect for you. Stagwell is pivoting from growth by acquisitions to more organic growth. What is different about the revenue growth rates and margins of these two strategies? Which you are the architect of both.

Jason Reid, Other

Yes.

Laura Martin, Analyst — Needham & Company

Talking to the guy. The guy.

Jason Reid, Other

Just for context, I spent 10 years just running the investment practice, I bought 50 M&A practice yes the M&A practice about 50 companies so the the the theory for the case behind M&A is I'm really buying three things right I'm buying either a capability which is I like I can't I can't do shopper marketing now so let me go buy a shopper marketing company I believe I could address that need through the funnel I'm buying a geography oh I've got a global Lenovo pitch but I don't have an office in Japan I need to go own that so I can service the client better, or three, I'm buying a client. And that means that, okay, this client has a foothold in Apple, I think we were just talking about. They do $15 million of revenue. I believe if I own that client, I can provide a robust suite of services around that client and make that a $50 million relationship. You're really buying expansion or the funnel to expand. I think when you pivot from M&A to internal investment, what you're recognizing is that For every dollar deployed I can either generate higher growth in today's environment or a higher margin And that's why I think we're leaning into the products that we're leaning into right these enterprise AI products first and foremost they are driving a substantial amount of organic growth today and And they have higher margin naturally now it's not software margins because we're sort of a Technology-enabled services business or somewhere between a managed service margin and a software margin, but it certainly should be a creative overtime Okay.

Laura Martin, Analyst — Needham & Company

Okay. But I think we're still a single-digit grower.

Jason Reid, Other

We are. This quarter. Okay. This quarter, yes.

Laura Martin, Analyst — Needham & Company

And I guess we get the benefit, you have this advocacy business that has like 500 basis points to your growth a couple quarters every two years. So, which I actually think is a curse more than a blessing. But anyway, so the point is, if we're a single-digit grower and we don't have advocacy, but then we get two quarters of double-digit growth thanks to advocacy, does really Wall Street give you credit for that six months out of every 24 months?

Jason Reid, Other

I think our business is naturally sort of lumpy. If you go back one quarter, the two-year stack would imply double-digit growth for our company. It's just this quarter, we lapped a tougher comp, and things are naturally lumpy for us. The target for our business isn't necessarily to be some rocket ship 15%, 20% grower. It's high single-digit. Sorry, low double-digit, high single-digit. We think we can outperform GDP and other services business. But at the core, we are a technology-enabled services business. I think if we demonstrate those numbers over time, there's material upside to where we are at $6 today.

Laura Martin, Analyst — Needham & Company

Okay. And one of the questions, I mean, one of the things that Adam argues that should be good for you is his point is ad agencies are going to get re-intermediated so long as they make agents that talk directly to unique supply. Like he owns unique supply because he's a double sided platform. Or Magnite has a single side, but their side is supply. And Michael Barrett sat up here and said, we have agents that you can buy through Claude, a Claude agent with this MCP protocol for agents into our unique supply. So basically Adam's thing is, he thinks the ad agencies get re-intermediated and accelerate into double digit growth because they can create agents that are buy side agents directly into unique supply. That's all set up through the programmatic ecosystem. Do you have an opinion on that?

Jason Reid, Other

I mean, I'd like to believe it um and why don't you believe i'm not saying i don't i don't i'm not saying i don't um so i i think i i think what sometimes is can i ask a question to the audience here how many people are are hobbyists how many people have an open claw at home yeah we got one does chat gpt count or no no it does it doesn't count because i'll explain i'll explain that because i think it's really important to practice what you preach and especially when when a when a uh when a new technology that comes around that you believe in like this, like for me, like when the metaverse happened, I was like, let's just ignore that. You were right about that assessment. But when this one came around, Mark and I have been working on AI since we were at Microsoft And like, when this came around, I was like, all right, I'm all in. Like, let's commit to this. Like, I'm pivoting from acquisitions. I'm just doing this. I'm investing in this. And so it's very important, like much to be like, if you believed in the app ecosystem, to buy the iPhone 1, right? It was very important to be a hobbyist, to be an enthusiast. And I think if you have an open claw or you have something similar, you learn the architecture in a way that at least at a minimum, even if you're managing a business, can give you insight into what you think is going to happen in the future. And so what you realize if you have an open claw or you're at least a little bit of a hobbyist, depending on if you can use Claude Cowork, whatever you use, is that the inference engines themselves are largely commodities. They're amazing. They're amazing, but you can switch them out. You kind of be like, I don't know. This one's not, you know, I'm going to use GBT 5.5 today. I'll use Opus 4.7. Like, let's just figure it out. The most important thing is actually the layer of context and data you give the machine. And that requires just continual optimization. If you don't have an expertise in the field, you can't write the skill, is what I've learned. So, like, I create skills now all the time that effectively are replacing me, right? But only I can replace the skill because I have a particular domain expertise. So if you're an investment analyst, like, you have to write that skill. You have to do weights. You have to change things around because Opus 4.7 is never going to know exactly what you're trying to do. It's going to rely on a bunch of, like, parameters that are generalized and it's not specific. It's going to pull the wrong thing. It's going to hallucinate. So it's really up to the human and the executive that has a specific domain expertise in order to train and use that thing. So where I think agents are, why agencies could be very relevant is because someone has to do that. You've got, you know, Mark Penn has 40 years of experience in market research, and he has to write this skill effectively that trains the LLM to outperform everybody else and every other system there is out there to do market research, and we're doing that. Like if you, in our survey companies, in our research businesses, we have written skills that increase the performance of just a raw LLM, of interpreting survey data by 200%. So it's just, it's going to make agents and humans more relevant rather than less, assuming you have domain expertise.

Laura Martin, Analyst — Needham & Company

Well, I was just going to say, and you're going to own that agent. Like if somebody wants to use your agent that's trained by Mark Penn in polling, which is his 50-year career path, you have to go through Stagwell to buy it or to use it.

Jason Reid, Other

It's not just Mark. It's the Harris Poll that we own.

Laura Martin, Analyst — Needham & Company

That's true. That's true. Updated data all the time.

Jason Reid, Other

We have data that goes back 50 years. And so that data set plus the training and what you put into the context window is extraordinarily important.

Laura Martin, Analyst — Needham & Company

Right, to train the agent. Okay, so I think one of the debates that's been on this stage today is, do programmatic rails get replaced by agentric rails with this MCP protocol? Do you have a point of view on that? Because I think Adam believes it gets replaced, which is the role he sees for ad agencies, that they have a buy-side agent that they've trained.

Jason Reid, Other

Yeah, yeah.

Laura Martin, Analyst — Needham & Company

That therefore doesn't even just go through the programmatic DSP.

Jason Reid, Other

I think MCP is controversial. I don't know if any of you guys have a take on it. I don't know. The answer is probably. It's new.

Laura Martin, Analyst — Needham & Company

I mean, so it will only get better.

Jason Reid, Other

It is the interface in which agents talk to each other. It creates... It's a very frictionless experience. Once again, I encourage the hobbyists. If you have to design your agent to interface with someone's NCP, it's interesting. Likely would be my conjecture. But I'm not technologically savvy enough to know its weaknesses.

Laura Martin, Analyst — Needham & Company

No, and I think a lot of CEOs aren't either. But the point they make, which I think is valid, is there's a lot of trust in the programmatic ecosystem to deliver ads in hundreds of a millisecond. And you can't just replace that with an agent because if something goes wrong, somebody needs to fix it. And if something goes wrong, it's billions of dollars. I mean, we're doing 500 billion a year in this country on these protocols. So you can't just move it.

Jason Reid, Other

Too many things can go wrong. It's going to be a little slower than people think, but we'll get there.

Laura Martin, Analyst — Needham & Company

I think that's one of the things Wall Street almost always gets wrong. Because we have liquidity and we can change our mind this minute. We think everything happens in years, and sometimes these things happen to decades. The decline of linear TV comes right to mind. It's something we overestimated by about 30 years, probably.

Jason Reid, Other

Well, to quote my old boss, Steve Cohen, panic first and panic early.

Laura Martin, Analyst — Needham & Company

Panic first and panic early, yeah. But if you have liquidity, that matters. If you're a CEO, you can panic all you want, but you can't change people out that fast. okay so let's talk about stagwell's growth in terms of political and cyclical not structural talk about structural growth drivers and why that doesn't get sort of masked by this huge updraft in the six-month period every two years which then makes the next year's comp really difficult to see the structural growth under not leave especially at the single digit it's in our guidance you can you can break it out in our guidance for the year um and first of all first I want to say that, you know, I think the political stuff is very underappreciated.

Jason Reid, Other

What we're seeing in the market is that the presidential matches the previous year, you know, previous midterm. Sorry, sorry, the midterms match the previous presidential, and they skyrocket. It's unusual. Yeah, and they skyrocket against each presidential. So it is actually something that's growing in excess of the core business, which we like. And it's not designed to amass the business. We invested in it because we believe it's a strong secular grower. And, you know, I think the updrafts are powerful for us, you know, as I made the case for the industry already, marketing. But for Stagwell, I think there's a couple different forces, right? There's number one that we are, we've now established ourselves, I think, as a reasonable number three option to the, you know, within Omnicom and IPG as a single unit. They're sort of shedding people and clients. We're getting some opportunities there. I think WPP is not in the greatest place. It kind of shows in their stock a little bit, but also just generally how the businesses are performing. I think that business is shrinking. It's giving us more opportunity. I think some of the upstarts that, I mean, Legends, obviously. Sorry, great, they're great, they're great. But yeah, so they're definitely in the top three. But I would argue that we're in contention with, maybe not on the same scale as WPP, but as clients come to us and talk to us, we're in the same level of pitches. So I think we're competitively well-positioned. I think some of the upstarts that came to market in the last few years are not doing as well. And I think from a core technological offering, because you asked about Publicis, Publicis is doing extraordinarily well in media. That's their thing. Ours is arguably digital transformation is the cornerstone of our business. And so I think we're coming in from a different angle. And this is in no way being critical of Publicis, But at one point in time WPP was like two-thirds reliant on their EBITDA just for traditional advertising media So so listen you can and I'm not saying they're a one-trick pony But but they're heavily reliant on this one thing where we're trying to take stag well is to be You know my ambition for the company has always been to compete with the consultancies of the world, right marketing is Accenture exactly and I know that they fallen out of bed and because they had for for the right reasons there They made these bets on coders and engineers, which isn't sustainable But to be that, to have that consultative layer, to be trusted as the strategic advisor to say, okay, we can do media, but we're more about orchestration and delivering business strategy as opposed to, hey, here's, you know, here's growth through media.

Laura Martin, Analyst — Needham & Company

And how does that compare to, like, the BCGs and McKinsey's of the world? Because it is different. What Accenture does is different than, like, the BCG's, just the strategy layer.

Jason Reid, Other

Yeah, and I would love to be at that layer of McKinsey's. That's not something you can really buy, unfortunately. You have to build it. And so I think, you know, we have agencies within organizations such as Gale that are led by five Former consultants from these places. You have to hire these people And and you know to me marketing has always been the tip of the spear within the organization, right? It used to be we lived in a world where you would produce a car It would sit on a lot and then you try and sell the car, right? We now live in a world where it's like, okay I can produce the car in real time based on consumer demand and consumer insights that I'm seeing that's delivered to me by Stagwell in real time. It's informing my research decisions, my product decisions. It's informing the entire ecosystem. I still believe that. I think there's an opportunity for us as we upskill our talent and deliver on these solutions that we can take part of that market share. Right now, we get a lot of money that gets pushed to us from the McKinsey's and the BCG's of the world. I'd like to take some of that.

Laura Martin, Analyst — Needham & Company

One of the things you've done a really good job of is when you did acquisitions, A lot of the pieces informed more than just their segment, meaning there were synergies across the group that you could bring somebody in on these on-ramps, and then you could upsell them. You had the right of first refusal. The minute a CEO said, well, I think I want to do this, one of the things you pay your people for is to say, oh, I got a guy. And if there was a Tuesday, he said that, Wednesday, you'd be introducing to your guy within the periphery that does that. And if five guys said, I want to do this, you guys would go buy that if you didn't have it because you wanted the guy on the Wednesday to call and go, hey, we do this. Would you like to meet Jess? He runs that division. So, Revison Synergistic, I don't see that with advocacy. I see volatility in the P&L, but I don't see the sort of product market fit that informs or helps any other part of the business.

Jason Reid, Other

That's interesting. I would – that's interesting. I know it's where Mark came from, so I get that it's like – It's his favorite child? Let's talk about targeted victory, right? So targeted victory is the – we represent both the right and the left. That's our right-leaning arm. And we do campaigns. We do the majority of senatorial campaigns. Obviously, we don't do the presidential because he doesn't really contract that out. But the majority of the money comes from fundraising. And it's low-dollar fundraising. It's truckers who are donating $100 to a Republican campaign. and we developed a text messaging platform that we patented a piece of technology around that and we're using that across the entire ecosystem now so the same technology that we use to solicit donations we're using for our clients to reach out and touch and touch base with their customers so i wouldn't say that i'll hate you probably yeah i mean no one likes to get a solicitous text but yes this is an example of synergy they developed for one of these advocacy things and it's used everywhere but you know if you're going to look for the synergy angle it's not like I have a guy it's not like everyone is going to say I have a guy that can do that it's what are you doing you're influencing consumers it's the same art raising money you're influencing them to raise money or maybe to vote or to vote it's consumer influence and if you can if you have power the intersection of politics and business these days is that it's a fever dream out there so so understanding that and managing it and you know the the the Sydney Sweeney stuff right the the crisis campaign like it's like we would not have been hired to do that if we didn't operate in politics so I just think that there's There's synergies.

Laura Martin, Analyst — Needham & Company

I feel like if you're working on digital transformation with somebody and he needs something, it's probably going to be business-related. So there's more, I'm going to call it shots at the hoop, if it's a business adjacency.

Jason Reid, Other

Yeah, I agree with that.

Laura Martin, Analyst — Needham & Company

If it's sitting over there in politics, because the guy might have stuff to say, but you can't actually use the product, probably, because it's in a completely different vertical. Let's talk about government, speaking of politics. One of the things you guys are brand new to, and I'm whining bitterly at Mark, but he's pushing back, is these government contracts you guys have started signing. And I think you've either signed one, you're about to sign a big one, and there's like four or more sitting behind that. And he likes that business because it's like five-year contracts, and it's really stable and really visible and almost gives you like a, I'm going to call it a subscription business model underneath. But with the department of like, you know, that can pay with the treasury, like essentially with the U.S. treasury. So it's a AAA credit sitting behind there. and it's long-term visible revenue so it gives you a base so let's talk about what you guys what your vision is for government and how that fits into all of this you gave me three categories we've only talked about enterprise you specifically listed government and never spoke it was just put the spotlight on government because i hate the political business because of the volatility it adds to your pnl and now you guys are doing government work yeah which should be more stable i it's it's a very interesting market it's a huge bucket of spend in in in global economies you could argue given politics these days we're going towards more government spending right so so it's it's you know it's something that we spent a lot of time with at Microsoft it's not a sexy business but it's it's the backbone of

Jason Reid, Other

those major consultants as we talked about Deloitte and others right so we think it's important we win those contracts and we think that the TAM is massive and we're not there so I'm optimistic but it's still very early days and does it give you any so we had this whole brouhaha over Claude refusing to share its data with the pentagon so then it kicked out the pentagon so then open ai took that and immediately it was the best marketing cloud could have ever done because all these enterprises abandon ship and because they don't want their data shared with with the government yeah so does this hurt you if you're doing government work does it potentially hurt you with some customers i mean government work for us is like the national park service we're not doing military applications so like it's not like we're not we're not we're not you know the i i don't think the government's ever going to come to us for any sort of thing that's particularly sensitive in the same way that they wanted to use Claude or OpenAO for military targeting.

Laura Martin, Analyst — Needham & Company

So when we're talking about government, it's like these sort of mundane, like they're big infrastructure projects, but they're on the periphery of what I think of as the government, which I think of national defenses.

Jason Reid, Other

Yeah, I mean, it's a big...

Laura Martin, Analyst — Needham & Company

And education is the two big buckets.

Jason Reid, Other

It's a big bucket. It's a big bucket, but we're not... We use Palantir for...

Laura Martin, Analyst — Needham & Company

Do you use more people? How does it differ in terms of a cost structure and return on capital for government versus enterprise?

Jason Reid, Other

I mean, fatter budgets, less oversight. Longer contracts, more visibility. Yes, yes, it's stickier for sure. But that's not what we use Palantir for, just for the sake of clarity.

Laura Martin, Analyst — Needham & Company

Okay, and so let's talk about Palantir. What are you using Palantir for?

Jason Reid, Other

Well, it's our, you know, stagwell agentic targeting system or SATs. I know it sounds vaguely like a military application. It's not. But basically it's using the same targeting technology they have for military applications to target consumers for advertising. What Palantir sort of excels at is taking data, structuring it in a certain way, and using models to maximize the performance on that. And so what's amazing about them as a company, from my perspective, is sort of the way they operate with us as partners. So it's not just like, okay, here's some foundry, you can use it. they become like engineering partners with you and you know we had an off site just a few weeks ago where they sent a team in and we sat with our team and we developed we developed and scoped things and they're very active in it they give you a dedicated team and and the talent pool they have at Palantir is extraordinary as you know so you know very optimistic about that as a standalone blown application but you know where we'd like to go eventually is to have sort of a real-time, you know, defense system, if you will.

Laura Martin, Analyst — Needham & Company

Don't use that word.

Jason Reid, Other

You just told me you're not doing defense, you're doing the park service. Okay, okay, but if we can connect real-time sort of social listening and insights through our media monitoring backbone, I've told you about the Pulse business this morning, to audience building and activation, you can have a real-time sort of marketing system. And I think, you know, we have different names for that, but we call it the holy grail of marketing. And, you know, I'm optimistic about that. So there's a lot of directions we can go with Palantir. But, you know, near and long term, I think that real-time system is on the horizon.

Laura Martin, Analyst — Needham & Company

And the way the business model works with Palantir, I assume you're paying them a consulting fee and you keep the upside from any products you develop together? How does the business model work?

Jason Reid, Other

Yeah, we don't, like, they're not involved in our sort of pricing discussions. We pay them for usage of the foundry and co-development.

Laura Martin, Analyst — Needham & Company

I see. Okay.

Jason Reid, Other

Okay.

Laura Martin, Analyst — Needham & Company

So I'm actually really curious as to how CMOs are behaving differently today compared to two years ago, and how does this help Stagwell?

Jason Reid, Other

Well, I mentioned the behavior around giving us a shot in the room for the first time. I think that's a notable change. That doesn't mean we're winning every contract, but our win rate is going up and our at-bats are going up. So I think that's a good thing. I also do think that in this world of, you know, agentic nuance, people are looking for coherence and orchestration and for you to come to the table with a single solution. And our answer to that is obviously the machine, which I think is differentiated today.

Laura Martin, Analyst — Needham & Company

You should tell them about the machine in this room because it's really interesting.

Jason Reid, Other

Sure. I mean, at its core. It's a product. It is a product, but it can be sold as a managed service. So what it does is it orchestrates all of the functions of your marketing department in such a way that you can go from research to creative iteration and ideation to audience building to activation all in one system. It can fit, anything can plug into it, whether it's Figma or Slack, and it follows your context through this window. So it knows everything you did about your research and creative ideation. By the time you go to activation, it remembers all of that, and it's all agentically driven. and so as we're going to clients today we're saying listen we can put this on your existing tech stack we can deliver it to you can use it and you can buy seats or you can buy licenses there's always an installation fee or we'll just do it for you right and we'll run it across our entire digital transformation organization um we're seeing great traction so far which way oh actually on on their on their yes yes yes um and you know these engagements were like sort of one to five million dollars right now including the implementation fee i think that could get a lot bigger i don't know but it's sort of it's very it's very important because it addresses this changing architecture the need to build skills and tools inside of an environment that tracks your context as you do it because then it helps you create the next email faster or create the next decision faster it gives you suggestions it's almost like you're training your own alum to help you faster right because it just it just makes it makes less mistakes if it knows the context of what you've done up to that point okay and how would you use it would you ask it a question or how do you yeah everything's so so there's many machines too which which are you're they're operating inside the environment or the mini machine follows your energy stuff much like co-work does but it's for the marketing functions it means it brings a different set of context and data into it so so so you can everything is a gentrically driven right so I can I can

Laura Martin, Analyst — Needham & Company

just I can type in something and say create these assets for me and or create these audiences for me um that is the interface I believe that's what was your question how would you use it yeah yeah like how do you how does somebody actually use it okay and I'm not surprised they don't want you to manage it because they would be sharing all their data and all their internal conversations I think that's why they want it on their system that's what I mean yeah that makes sense to me like I was thinking oh it's probably managed service because they're slow but I totally see the privacy things and I totally it makes the minute you said they really want it on their system. That makes sense to me, actually. Okay. And in terms of your attach rate, is it one of the fastest product adoptions you've had, do you think?

Jason Reid, Other

Definitely. Okay. For this level of a new thing, yes. And for the size of the engagements.

Laura Martin, Analyst — Needham & Company

But I assume these are warm leads. These aren't actually new. This is an upsell to existing client you have.

Jason Reid, Other

Oh, yeah. All of the majority of the sales cycles is currently running through Code and Theory.

Laura Martin, Analyst — Needham & Company

Yeah.

Jason Reid, Other

So they're existing clients. So this is just an upsell, which is what you guys are so good at, is coming in on an on-ramp and then upselling a product this attach rate has been faster than other products for sure but we do want to make it so it's not so dependent on the division we're hiring a bunch of sales leads at corporate uh in order to sell the machine for clients that are outside of the scope of code right that makes sense but within the warm lead perimeter of stagwell they just wouldn't necessarily be code and theory clients right but we can our back to our biggest bottleneck right now is sales people okay like which makes me bullish like the products work right um like we need to hire salespeople because it is a new technology. People have to have their hands held.

Laura Martin, Analyst — Needham & Company

But aren't the salesmen kind of a different kind of animal? Because they have to understand what the hell this does. They're probably selling to a CTO.

Jason Reid, Other

Well, that's why we're hiring a different type of salesperson.

Laura Martin, Analyst — Needham & Company

Yeah.

Jason Reid, Other

So our global CMO and his team, by the way, amazing guy. No offense. He's an amazing dude. But we need to have a more technical sales leader. Yeah.

Laura Martin, Analyst — Needham & Company

Because you're talking to the CTO to sell this product, presumably. Who's going to integrate? I mean, he doesn't want his software to crash. That would be bad for him.

Jason Reid, Other

Right.

Laura Martin, Analyst — Needham & Company

So he needs to make sure it integrates flawlessly.

Jason Reid, Other

Yeah.

Laura Martin, Analyst — Needham & Company

It sounds like you have a bunch of case studies, though, where you've done this with big clients and it didn't crash their systems.

Jason Reid, Other

We have done it.

Laura Martin, Analyst — Needham & Company

Yeah, okay. What is the long-term relationship between Stagwell and the hyperscalers like Google, Meta, and Amazon? Are ad agencies, are you becoming more dependent on them or more valuable because of them?

Jason Reid, Other

When you say hyperscaler, you're saying someone that delivers compute, like AI compute, or are you talking about the actual platforms, the ad platforms that they run?

Laura Martin, Analyst — Needham & Company

More than the cloud infrastructure.

Jason Reid, Other

Right, so I suppose, look, to me, like, platforms are platforms. they come and go like whether or not the power of Instagram is more or less relevant and I don't think it's becoming less relevant determines how engaged and how how strong our relationship needs to be with them right like we're negotiating pricing terms with Google all the time so so you know I think to the extent that their platforms grow and are more powerful than we have to become more dependent on them and have better relationships and I think YouTube is really underappreciated in the ecosystem today so so you know I think they're great partners but the art for the agency is to have that sort of meta decisioning engine that sits on top of those and there's always you know you outlined this earlier this all this battle to get the right amount of data deliver ROI and measurement across platforms and that's always going to be the battle for the agency to deliver like that insight for your clients that goes above and beyond a single or several hyperscalers if you will Well, what do you think the future of the living room is? So if I told you that YouTube, and not even YouTube TV, just YouTube, is the most watched thing in the living room across America, I think most people wouldn't know that.

Laura Martin, Analyst — Needham & Company

Nielsen publishes it every month, so then they don't read Nielsen.

Jason Reid, Other

But it used to be YouTube TV was growing really well. Now it's just like reels, right? People are watching reels in their living room. so I just think that that is not necessarily fully captured in the public mindset so I think like it's so so how do you think about the future of the living room how much share could YouTube as an open platform to publish content succeed over what people are absorbing today right I just I don't know I think it's an open-ended question and it's the battle for content but I I do see a world when a lot of people are just watching YouTube in their living rooms The problem we've seen with YouTube is there's a big disconnect between hours viewed and monetization because there's so much risk on that platform.

Laura Martin, Analyst — Needham & Company

And as AI adds more lower cost content and lower quality, there's more and more rails put on any ad that's about to show up on YouTube because people are really worried about where their ad's going to show up next to and the quality of it. So I don't know that the disparity between viewing and money, because I only care about money. You may care about viewing, but I don't know why. If it's all going to go to lower quality viewing, money will not follow.

Jason Reid, Other

Well, do you think that agents have the capability to make that environment safer?

Laura Martin, Analyst — Needham & Company

I mean, it would have to be Google-imposed agents because they are completely within themselves. If Claude has a great agent, they will not use it. They will use Gemini to try to fix it. And they're really incented to maximize ad revenue, which means low transparency, not letting their data out, not making it fungible with anyone else's. I mean, as Adam just said I'm there to make the client budget go further. Google's there to make Google's budget go further. Google is there to enrich itself. It isn't trying to help anybody else, including its clients.

Jason Reid, Other

Yes. I would imagine they're also in the business of making money, so over time they'll make a very safe environment.

Laura Martin, Analyst — Needham & Company

They haven't so far.

Jason Reid, Other

It's been 15 years. I hear you. I mean, they've owned it for 10. I hear you.

Laura Martin, Analyst — Needham & Company

So, I don't know. We'll see. We'll see. It should monetize far better than it does given the hours of viewing it gets. So, anyway, okay, questions from the audience? We have a couple of minutes left. Any questions for Jason and Stagwell?

Jason Reid, Other

You can ask me about my open call if you want.

Laura Martin, Analyst — Needham & Company

Yeah, okay, go ahead.

Jason Reid, Other

No, no, I'm kidding.

Laura Martin, Analyst — Needham & Company

Okay, so it sounds, one of the things you said that I think is interesting is you're really trying to move Stagwell strategically towards more of a Deloitte or Accenture kind of business model, which is this digital transformation, consultative kind of fee generation and less, and moving it away from what I would actually say are Mark's true passions with our advocacy and PR and communications, which is where he sort of started in the world. Do I have that right?

Jason Reid, Other

Well, I mean, look, don't get me wrong. We debate this all the time. The value of a incredibly strong single point solution to a problem versus having a consultative layer, and where does the economics get captured, right? So you made the publicist argument, yeah, there's massive economics in their media business. So we debate this, but was Mark Penn a pollster and then a chief strategy officer of Microsoft? Yeah, I think so, right? So ultimately, the biggest dollars are the person who takes that perch, right? And they can deliver on all of the point solutions. It's just verticalization, right? You know, I want to have the business consulting relationship so I can give you the best research product, so I can give you the best digital transformation products, the best, well, in this case, publicist is winning, the best media products, et cetera, et cetera. So there's this, I think there's always going to be this push and pull. And you don't want to overextend yourself too deep into a vertical because you can lose. Like, you know, this is not taking shots, but like I think you're interviewing Mr. Faster Better Cheaper this during this cycle, and it's like, okay, well if you went too hard Which is who? Sorrel?

Laura Martin, Analyst — Needham & Company

Oh, Martin.

Jason Reid, Other

Yes, yes. And yeah, so if you went into faster in production as if you were like this is the future and it's the only thing that matters, well then you lost. So you got to be very careful in how you balance those bets because you're right, having these point solutions sometimes can make you so much money at fat margins and they scale very quickly and consulting doesn't scale. So you have to find that balance between the two.

Laura Martin, Analyst — Needham & Company

Well, and the point I would add is that in a gen AI world, if you think human judgment is the thing that actually has the most longevity and the highest LTV, being the strategy layer, regardless of two years ago and before, may become the thing that is most defendable.

Jason Reid, Other

But I want to win both, right? I want to have the best agentic solution in research. I just got off a phone call with our entire research department. I want to have the best point solutions, but I also want to make sure that everyone is thinking from a broader solutions mindset. You're not just selling research. You are selling everything our company has to offer. You're selling the machine, right? And how many channels can I open up to sell the machine? That's where I'm trying to go.

Laura Martin, Analyst — Needham & Company

Yeah, okay. Any questions?

Jason Reid, Other

Okay, then I'll ask my last one. what do you think wall street gets most wrong about stagwell and where like what is the biggest upside surprise that stagwell could generate that would um surprise well you know help the stock price to the upside well i think it's a cohesion of kind of everything we've discussed i think i think people are grossly underestimating the the future of marketing marketing is like one of the oldest industries in the world and i think will persist for a very long period of time and budgets are actually set to grow as opposed to shrink i think in the agent world i've made my case there number two I you know we're not we aren't burdened significantly by a bunch of legacy assets we're not contracting in the same way that Omnicom and IPG or WPP are so I think on a relative basis we're doing really well and and you know I think where you can really get get things right is if not if when these products hit full maturation and hopefully by the end of the year and we have a full sales cycle in place we have the right sales force we have the right channels, I think there's significant upside to that. I'm not promising like 30% growth, but certainly something well in excess of GDP in the comps.

Laura Martin, Analyst — Needham & Company

Okay. And we think, you think we might be able to start, see that kind of acceleration in 2027 because these products will be in place by the end of 2026.

Jason Reid, Other

I think that's when the flywheel hits.

Laura Martin, Analyst — Needham & Company

Okay.

Jason Reid, Other

Okay. You'll see, you'll see acceleration throughout the year.

Laura Martin, Analyst — Needham & Company

Okay. Great. Okay. I think I will call it there and I appreciate, appreciate your time. Thank you, everybody.