WPP, like its US-based rivals Omnicom and Interpublic, was clobbered by the slowdown (in some cases complete absence it seems) of big-spending tech clients in Q2 2023.
The London-based ad giant reported only slight growth in Q2 and a reverse in the US with revenue less pass-through costs (its preferred measure of organic growth) of just 2% for the 2023 half year. This is slightly behind Omnicom and ahead of IPG. Publicis reported over 7% growth.
Its full year forecast has been reduced to between 1.5-3% from a previous 3-5%.
Profit before tax plunged from £419m to £204m, a drop of 51.2% and alarming for investors.
By activity media in the form of GroupM did best – up 6% – with what WPP calls global integrated agencies down 2.2% in the first half although they recovered somewhat in Q2.
These are pretty grim numbers although in line with most of WPP’s peers. It shows how dependent the big agency groups have become on a relatively small number of tech clients who have clearly been delivering a big part of revenue and most of the profit.
Further consolidation of WPP’s creative and other non-media agencies should be expected.
CEO Mark Read (above), in a rather more brief statement than usual, says: “Our performance in the first half has been resilient with Q2 growth accelerating in all regions except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects.
“This was felt primarily in our integrated creative agencies. China returned to growth in the second quarter albeit more slowly than expected. In the near term, we expect the pattern of activity in the first half to continue into the second half of the year.”
Read says WPP has won major new business from Reckitt, Mondel?z, easyJet, Lloyds Banking Group, Pernod Ricard and India’s second largest advertiser, Maruti Suzuki.
Will AI dig WPP out of what seems a pretty big hole, at least in the rest of 2023?
Read says: “We have exciting future plans in AI that build on our acquisition of Satalia in 2021 and our use of AI across WPP. We are leveraging our efforts with partnerships with the leading players including Adobe, Google, IBM, Microsoft, Nvidia and OpenAI (those pesky tech companies again.) We are delivering work powered by AI for many clients including Nestlé, Nike and Mondel?z. AI will be fundamental to WPP’s future success and we are committed to embracing it to drive long-term growth and value.”
WPP’s share price fell more than 6% in early trading. Read clearly has a struggle on his hands.