A slump in advertising spending by US technology groups has forced WPP, the world’s biggest ad agency, to slash its annual revenue forecast as the effects of the tech downturn ripple out.
London-listed WPP predicted earlier in the year that it would defy macroeconomic turmoil with annual growth of between 3 and 5 per cent, but on Friday it cut its like-for-like growth forecast to between 1.5 and 3 per cent.
WPP, which counts Silicon Valley giants including Meta, Google and Microsoft among its clients, was hit by a 4.9 per cent year-on-year drop in revenues from the tech sector in the first half of the year. US revenues fell 4.5 per cent in the second quarter, the only region to register negative growth.
“There’s no doubt that we were taken a little bit by surprise by cuts in spending by our technology clients and some reduction in technology project spend that’s primarily been in the US,” said Mark Read, WPP’s chief executive. WPP’s shares fell 7 per cent in early morning trading in London.
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The gloomier outlook from WPP echoes that of rival agencies in recent weeks as companies prune their marketing budgets because of economic uncertainty. Last month, US-based Interpublic halved its growth forecast, Omnicom fell short of second-quarter analyst expectations and S4 Capital, owned by former WPP executive Martin Sorrell, issued a profit warning as clients tightened marketing budgets.
“We are a cyclical business and sadly there’s nothing I can do about that ... I wish I worked in a company that wasn’t sometimes,” said Read. “We are inevitably impacted by the economic cycle and to deny that would be to make your life really difficult.” Revenues from the tech sector account for almost 18 per cent of WPP’s overall business.
WPP posted revenues of £7.2 billion (€8.4 billion) for the six months to the end of June, up 3.5 per cent on a like-for-like basis compared with the same period a year earlier. Pretax profits for the first six months of the year fell to £204 million from £419 million in the same period in 2022.
The slowdown in tech companies’ ad spending mainly affected WPP’s integrated creative agencies, such as VMLY&R and Wunderman Thompson, which reported a 2.3 per cent decline in the second quarter. The only other sector in which WPP suffered a large drop in ad spend was retail, falling 7.9 per cent – in large part because of the loss of Walgreens Boots Alliance as a client.
Conor O’Shea, analyst at Kepler Cheuvreux, said any agency with “high exposure” to the tech sector was “vulnerable”. “Big and small tech have been huge advertising clients in recent years but the end of the free money era means a big reset of marketing spend,” said O’Shea.
Microsoft revealed last month that it had cut ad spending by 40 per cent year on year to $904 million (€820 million) in the year to the end of June, citing a “decline in Windows advertising”.
But Read remained optimistic. “We have seen some pullback in technology clients but, in the long run, those clients remain significant advertisers and will in the future return to some normality in their marketing once they go through this period of adjustment,” he said. – Copyright The Financial Times Limited 2023
