Ad agency giant's shares hit by digital
At first glance, it's not exactly a hold-the-front-page article, until you consider what it means for journalists and publishers. WPP is generally regarded as one of the largest companies in the world that sells advertising and is used by some of the biggest, most powerful brands to market and advertise products. But its interim results led to its share price slumping more than 12% in London. The company reported that billings rose 6.3% but that's actually a drop of 4.7% based on currency constants. While its revenue grew 1.9%, it's actually a drop of 0.3% on 2016 trading. It's really the outlook that has spooked the market with July 2017 showing a -4.1% revenue growth and -2.6% net sales growth indicating that the company has slumped in its second quarter. The loss leaders are the UK, Latin America and Central and Eastern Europe with all sectors down including advertising and media investment management, as well as data investment management as the most affected. The company says cumulative like-for-like revenue growth for the first seven months of 2017 is down 0.9% while sales have contracted by 0.8%. WPP revised its forecast downwards with both revenue and sales likely to crimp. The company says it's happy to report that its operating margins are being kept low – in that read that staff are not getting bonuses. While it continues to focus its future on what WPP calls “new markets” and functional strength in the new media and investing in data sales as well as new technologies, the company is planning to "improve staff costs", which in company terms usually leads to retrenchments. WPP employs more than 205,000 (including associates and investments and has more than 3,000 offices around the world). It operates in 112 countries and reported revenues of £14.4bn as of December 2016 with a market capitalisation of £22.2bn. The company is a member of FTSE100, Euro FT300, Forbes Global 2000, FTSE4Good Index and the Dow Jones Sustainability Index.
WPP operations around the world.
The company began in 1985. WPP stems from Wire and Plastic Products', a UK manufacturer of wire baskets, which became the 'foundation' company in which owner Sir Martin Sorrell invested following his search for a public entity through which to build a worldwide marketing services company. While the company talks of increasing its data services, the reality is competitors like Google and Facebook are yards ahead of the operation. Retailers and publishers are now grappling with the use of data, while legacy companies like WPP try to become more nimble to cater to the needs of a digital audience. Facebook and Google are accused by publishers of hiving off millions of dollars in possible earnings that would go to publishing entities, and a lack of transparency in how they deal with issues of privacy. These two account for a fifth of all digital advertising in the world today and WPP is losing clients who’re trying to reach an audience or customers directly. Volkswagen moved away from WPP earlier in 2017 after almost two decades of using the services of the advertising giant. While WPP tries to work its way around the big digital players in the industry, the changing advertising landscape is likely to challenge the legacy management and executive component of the operation – along with editors and media owners worldwide.
WPP CEO Sir Martin Sorrell has said he doesn't see retrenchments taking place at this time, but as his staff bill requires trimming and it's business practice to either reduce income or retrench staff at a time of cost overrun. He's admitted, though, that the Brexit negotiations are having an impact on their planning.
“About 17% of the 14,000 to 15,000 people we have in the UK come from the European Union,” he told media. “If there are severe restrictions on their movement inward or outward in the future that will obviously impact our business in the UK. Our response is to increase investment in France, Germany, Italy and Spain. Those are four of our top 10 markets and we can’t afford to lose influence or position in those markets.”
At the same time, from South Africa to the US and across the world, media owners are trying to re-establish a business model in a digital age, which is proving a binary bridge too far for some as advertising revenue collapses in print and brands turn to direct marketing and viral marketing techniques on digital platforms, such as YouTube (owned by Google) and Instagram (owned by Facebook), to sell directly to their marketplaces.