What’s next for WPP after underwhelming Capital Markets update?

The Sherlock Holmes story Silver Blaze hinges of the “curious case of the dog in the night time” or, in this case for us, “the dog that didn’t bark” (it was expected to.)

The dog in question is WPP founder Sir Martin Sorrell who would normally be expected to be noisily applying his hand-made Lobbs to the rear end of his WPP successor Mark Read as Read struggles to return the rambling empire he inherited six years ago to growth. Sorrell would be full of useful tips, maybe even suggesting it was time he returned.

But Sorrell’s own S4 Capital’s share price is in an even worse state than WPP’s, losing over 90% of its value from a dizzying (and frankly unrealistic) £5.2bn a couple of years ago as tech clients, the basis of its business, cut back and it was found out for expanding too fast. WPP, by comparison, has lost 16% in the past year but rewind a few years and you’ll find it was once worth £24bn compared to £8bn or so now. French rival Publicis is worth £20bn (Omnicom £13.5bn.) Looks like adland’s version of the battle of Waterloo has been reversed.

Read’s strategy, outlined at a Capital Markets day yesterday, is to double down on A1 and save staff and back office costs by slimming down WPP to six main brands. These are: AKQA (incorporating Grey), Ogilvy, VML (absorbing Y&R, Wunderman and JWT), Hogarth (production), GroupM (incorporating EssenceMediacom, Wavemaker, Mindshare and tech ops Nexus and Choreograph) and Burson (now all the big PR companies apart from Finsbury.) WPP’s 40% stake in data company Kantar is up for sale.

This may be sensible housekeeping (or not) but hardly amounts to a strategy. Profits may be boosted in the short term but where’s the growth?

AI isn’t just WPP’s toy. Publicis claims to be using it already to pull its empire together. If AI does, indeed, revolutionise adland it’s at least as likely to do so in the hands of Microsoft (currently the world’s most valuable company thanks to its presence in AI) or a big consultancy-based operation like Accenture Song (although AS has eschewed media agencies to date.) WPP’s £300m or so investment is small change for this lot.

The focus on fewer brands may, indeed, make WPP easier to navigate for clients but the acid test is: are the brands as good as they need to be? It’s always more or less impossible to tell with ad holding companies but GroupM has been losing big accounts and VML is unproven. Ogilvy looks in the best shape but that might be sold if WPP needs to rationalise further without dismembering the whole shebang. It’s hard to see what else might put a rocket in the share price, given WPP’s conservative forecasts for 2024 as a whole. Apart from a bigger than expected sale of the Kantar stake, maybe, which might give it the firepower for a transformative deal.

What would Sorrell’s advice be, were he inclined to offer it? He’d probably begin by saying he wouldn’t start from here. He bought all those now “retired” companies after all. His strategy for WPP was to be the biggest, banking on the world’s biggest advertisers wanting to be part of it. He also knew that in agencies momentum is all and what an ad holding company can’t afford to do is go backwards (as happened at Saatchi & Saatchi, his first home.)

It’s hard to see what else Read can realistically do apart from pray that his clients, particularly the tech-based ones, start spending again and his new slimmed-down agency line-up delivers. Otherwise a private equity company will surely have a go – probably by taking the company private and then re-listing in the US at some stage. Or a cheeky upstart might try a reverse takeover. Sorrell’s WPP owned a few UK design companies and a shopping trolley business when it bought JWT for a then record-breaking $566m in 1987.

2024 looks likely to be an interesting one for WPP and Read. The barbarians are surely at the gates although, at the moment (like our dog) they’re being strangely quiet about it.

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