Clients are spending their money on AI instead of investing in marketing, according to Sir Martin Sorrell, who blames rising technology budgets for S4 Capital’s first quarter revenue fall of 11%. Having founded the business as a more digitally savvy alternative to the legacy agency groups, S4 has proven to be just as vulnerable to the reduced marketing budgets of the Big Tech companies, the shift to AI, and the whims of President Trump’s tariffs.
Europe and the Middle East down 17%, while the US was down 11% and Asia-Pacific by 13.6%. S4 Capital’s fall in revenues follows two profit warnings in the last year.
Sorrell, who turned 80 in February, said that he expects to see an improvement in the second half of this year thanks to some new business wins, but he will continue to focus on managing costs. Staff numbers have been cut by 8% over the last year (2% in the first quarter) and net debt is down to £144.8 million from £206 million a year ago.
S4 Capital plans to focus on larger, scaled relationships while driving margin improvement through “greater efficiency, utilisation, billability and pricing.” But he insisted that he remains confident in his strategy, business model, talent and client relationships, all of which he believes position S4 Capital for growth in the long run.
Sorrell said: “As indicated previously, trading in the first quarter reflects the continuing impact of — to say the least — volatile global macroeconomic conditions. As a result, clients remain generally cautious, with technology clients, which account for almost half our revenue, in particular, continuing to prioritise capital expenditure on AI over operating expenditure, such as marketing.” Shares were down 6.6% yesterday.
