The world’s biggest advertising group has cut its full-year forecasts for the second time this year amid a prolonged slowdown in spending by the big American technology companies.
WPP said in August that the likes of Apple and Google had cut their marketing budgets in response to a post-pandemic drop in demand for their software and services. Since then, the FTSE 100 company said on Thursday, there had been “continued weakness from technology clients”.
Indeed, Meta Platforms, the owner of Facebook, Instagram and WhatsApp, said this week that it had spent 24 per cent less on advertising over the summer than it had done last year.
WPP said that trading had been tough more broadly in North America, while its Chinese business is suffering from sluggishness in the world’s second largest economy. A senior executive based in Beijing was dismissed by GroupM, the WPP-owned media agency, this week after being investigated by police over bribery allegations.
“If anything, [the drop-off in spending among technology clients] got a little bit more intense in the third quarter,” Mark Read, the chief executive of WPP, said. “It is clear there is some cutting back as technology companies look to strengthen their profitability.
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“They’re also going through an innovation cycle, with artificial intelligence and other products coming up, so they’re maybe a little hesitant to spend [on marketing] as they go through that.”
WPP said, therefore, that revenue, less pass-through costs, would rise by between 0.5 per cent and 1 per cent in 2023. At the start of 2023, it was hopeful of achieving revenue growth of up to 5 per cent and even after the summer warning thought a rise of 1.5 per cent to 3 per cent would be achievable.
Profit margins are also under pressure, with WPP forecasting a full-year operating margin of between 14.8 per cent and 15 per cent, compared with the 15 per cent margin targeted previously.
Shares in WPP closed down 1 per cent, or 6½p, at 684½p.
Roddy Davidson, at Shore Capital, the broker, said WPP’s update “adds to the current sense of caution around the advertising market”.
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WPP is behind hundreds of advertising and marketing groups, including Ogilvy, GroupM and Hill+Knowlton Strategies. It was built by Sir Martin Sorrell, who left the company in acrimonious circumstances nearly five years ago and was succeeded by Read.
Although it specialises in advertising, WPP owns several agencies that help clients with their technology, such as building new ecommerce platforms and customer relationship management systems. Read said demand for such projects “hasn’t worsened” since the summer.
WPP generated revenue, less pass-through costs, of £3.51 billion between July and September, 0.6 per cent down on the third quarter of 2022 and below what it had anticipated. Trading in the United States, Germany and China, three of its top five markets, was particularly weak. Revenue in Britain rose by 1.1 per cent in the quarter, although that represented a sharp deceleration from the 9 per cent like-for-like growth recorded in the previous three-month period.
“Corporates are really seeking to protect their margins to hit their year-end numbers,” Read, 55, said, “and the macro environment is in a challenging space. Interest rates show no sign of coming down and the level of conflict and polarisation in the world is sadly increasing.”
Technology and retail clients were the main drag on WPP’s third-quarter performance, with revenues falling by 12.7 per cent and 8.4 per cent, respectively. The consumer packaged goods sector was the standout performer, growing by 14.5 per cent year-on-year after new client wins, including Nestlé and Unilever.
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In total, WPP won $1.4 billion of new business over the summer with companies such as Estée Lauder, Hyatt and Lenovo.
