When companies go public, it can be good for shareholders and radio alike. That’s because companies filing IPOs tend to allocate a substantial share of their revenue to advertising compared to more mature companies. An analysis by GroupM Business Intelligence Global President Brian Wieser shows companies in well-established categories such as consumer packaged goods allocates about two percent of their revenue to advertising. That compares to newly-public companies that average 28.8%.
“It is unsurprising to see rapid growth from newly public companies,” says Wieser. “Typically, it is the fastest-growing private companies that become public ones.”
But Wieser says in a blog post that the range of ad spending by companies that went public last year show they spent between 3.6% of their revenue on advertising to a high of 103% – which means some spent more on advertising than was generated in revenue. “These levels are substantially higher than comparable figures for more mature companies,” says Wieser.
To illustrate that point, Wieser gathered data from thousands of companies from across a variety of ad categories to compare which earmark the most dollars to advertising. “While CPG, Leisure, and Luxury are among the most advertising-intensive categories, none come close to the levels set by the newly public companies,” he says. “Overall, we can see that the typical company among this group allocates only 2.4% of revenue to advertising.”
Not every company that completes an IPO spends more. But among those that do, Wieser thinks the long-term story is good. “It’s also more likely that most of this group will sustain current levels of spending, as such levels are likely ingrained in their business models,” he says.
The number of IPOs has continued to soar in 2021. During the first half of the year, Nasdaq had welcoming 410 initial public offerings in the first half of this year and raising a total of $106 billion – the highest amount of proceeds raised on record since 2008.
Wieser says that the recent wave of companies going public helps explain why the advertising economy has grown in recent years in the U.S., as well as in China and the U.K.