Ad meltdown after WPP clients cut spending

WPP has been forced to cut its annual forecasts as tech clients cut spending budgets.

Although the advertising giant had earlier said it would defy the economic crisis with annual growth of 3-5 percent, it yesterday backed down to estimates of 1.5-3 percent.

WPP also said profit fell to £204m for the six months to the end of June, from £419m in the same period in 2022.

The figures surprised the City and sent London-listed WPP shares down 3.5 percent, or 29.2 pence, to 818 pence. Like many of its rivals, the advertising group has suffered as companies cut their advertising budgets in the face of economic uncertainty.

Chief Executive Mark Read did not shy away from the dismal results, laying bare the scale of the recession.

“We’re a cyclical business and unfortunately there’s nothing I can do about it. I wish I had worked at a company that wasn’t sometimes,” he said.

“We are inevitably affected by the economic cycle and to deny that would be making your life really difficult.”

WPP, which counts Facebook owner Meta and Google as clients, blamed the drop on drastic cost-cutting taking place in Silicon Valley, which has seen projects slashed and up to 220,000 workers laid off across the industry. technology so far this year. .

Revenue from WPP’s technology clients fell 5 percent in the first half of the year as they scrapped major campaigns.

Conor O’Shea, an analyst at financial services firm Kepler Cheuvreux, said any agency with high exposure to technology companies was at risk.

“Tech big and small has been a big ad client in recent years, but the end of the free money era means a big marketing spend reset,” he said.

WPP originally began as a manufacturer of wire shopping baskets before advertising mogul Sir Martin Sorrell took the reins in 1985, transforming it into one of the world’s largest advertising agencies.

He grew the company using a cloak-and-dagger M&A strategy, and as a result, WPP is made up of renowned agencies such as Ogilvy, Wunderman Thompson, FGS Global, and Hill and Knowlton. But Sorrell left in 2018 to set up a rival company, S4 Capital.

Speaking to the Daily Mail last night, the 78-year-old businessman said WPP was exaggerating the impact of the technology slowdown on his business.

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“I think it’s a crutch, and the real problem with WPP is that they haven’t developed a strong enough digital story,” he said, pointing to the recent rebound of major ad tech giants like Google in quarterly results in recent weeks. .

Sorrell called the results a “puzzle” but suggested the most likely conclusion was that French rival Publicis was gaining market share.

But Sorrell himself has been in trouble, and last month S4 Capital issued its own profit advisory.

Likewise, advertising giants Interpublic and Omnicom have cut their growth forecasts below analysts’ expectations.

Paris-listed Publicis appears to be the only agency to escape unscathed, raising its guidance for 2023 instead.