Are WPP’s recent poor results an inevitable consequence of tech clients cutting back, as CEO Mark Read says, or a sign of more fundamental weakness?
And will it affect the big ad holding companies as a group going forward in 2023 and beyond?
WPP, like IPG which saw negative growth in the first half of 2023 – WPP is still up a bit, blamed its Q2 problems squarely on tech clients in the US, its biggest market.
Such clients, which have cut nearly a quarter of a million jobs in the past year, are restoring their margins, goes the story, and cutting back on marketing. Or the marketing via ad holding companies anyway.
Creative agencies seem to have taken the biggest hit although media agencies, oddly if such clients are cutting back, seem to be powering on. WPP’s GroupM is up 6.1%.
Tech companies are now among the world’s biggest traditional media advertisers with Amazon, still making a fortune, at the top of the list. Amazon usually spends heavily on big budget campaigns with no expense spared on production. Apple similarly although an increasing amount of its output seems to be in-house and it’s hard to ascertain the contribution made by long-serving creative agency Omnicom’s TBWA\Media Arts Lab.
Most financial commentators seem to be giving WPP the benefit of the doubt – Read (above) has admitted he operates in a “cyclical business and sadly there’s nothing I can do about that – I wish I worked in a company that wasn’t sometimes.”
Investors seem to be sitting on their hands – WPP shares fell nearly 9% on Thursday’s results but have recovered about half of that. Hardly a ringing endorsement but better than it could have been.
The real problem for Read, as head of an FTSE100 company, is that pesky share price. It just refuses to move in the right direction and these results hardly help.
In good old GPB’s WPP, although the biggest ad holding company by revenue (just) and headcount (by far) is now valued at £8.8bn behind Publicis on £16.3bn, Omnicom at £12.7bn and Interpublic (IPG) at £10.2bn.
A shareholder might reasonably ask, what are all these people (more than 100,000) doing if media is making all the money. WPP’s operations span PR, lobbying, design, production and goodness knows what else as well as creative agencies.
Read has done a great job of steadying the ship after the forced exit of founder and CEO Sir Martin Sorrell (still sniping from the sidelines at his S4 Capital, which has tech client problems of its own) but it may be time to time to revisit the internal mergers which saw the creation of Wunderman Thompson and VMLY&R with Grey absorbed into AKQA (or is it?)
Or look at disposals, something of a dirty word at WPP although one of Read’s first acts was to sell a majority in research outfit Kantar to Bain to reduce debt. Ogilvy, for example, is a not-so-mini holding company in its own right although it closed media agency Nexus a few years ago.
Or he could buy an indie hotshop and get them to sort it out. But that may be a story for another day.