WPP shares headed lower again today after a near 8% fall on Friday despite producing decent enough Q2 and half year figures and raising its full year guidance a bit.
As we observed on Friday, timing is all in these things and the results coincided with a dire day or two for the UK economy with interest rates rising 0.5% (a lot these days) and the benighted Bank Of England forecasting 13% inflation and a recession lasting the best part of a year. CEO Mark Read (below) struck a cautious note in his comments but anyone in their right mind would be cautious with so many clouds on the global economic horizon.
Read’s old boss Sir Martin Sorrell didn’t do him any favours either (not that he would) when he slashed S4 Capital’s profit forecast for the year and and placed a moratorium on acquisitions and (most) hiring. S4C has seemed to defy gravity with its digital-only mantra of ‘better, faster, cheaper but, ultimately, gravity has its way.
The outlook for all the big ad holding companies is looking rather like the banking industry before the great crash of 2008. Crazy sub-prime property lending in the US had piled up a veritable mountain of debt but banks seemed to be seeing their way through it until Lehman Brothers collapsed and brought down the whole house of cards. Britain’s RBS, based in Edinburgh, was then the biggest bank in the world by some measures but it promptly collapsed too leaving the UK government (taxpayers) to bail it out along with others including Lloyds and Halifax. The ad holding companies, of course, have no such fairy godmother.
The worst may not come to the worst, of course, but it’s hard to see ad spending – including the previously all-conquering digital – defy gravity if the world is skewered by rampant inflation caused in large part (although not exclusively) by Russian energy heading to China and India (the world’s two most populous countries) rather than Europe. A global recession may well be the consequence.
Those lucrative sources of income for ad holding companies – ecommerce (now they just call it commerce because they see everything as digital these days) and customer experience – may begin to dry up. Big companies will still try to attend to both (although they’ve mostly made a hash of the latter) but conserving cash may become the order of the day.
One thing seems certain: the hiring taps in agencies will be turned off and there’ll be many more in-company mergers.