WPP defies digital ad downturn with raised growth target

WPP has raised growth targets for this year as it sidestepped the slump in digital advertising but acknowledged global economic troubles were putting pressure on margins at the advertising agency group.

Mark Read, chief executive, told the Financial Times the sales performance showed it was “not just an advertising company” and now had a more resilient business mix across ecommerce and tech.

But he acknowledged inflation, wage pressures and China’s lockdowns might temper expected improvements this year. WPP said its operating margin would rise by 30 to 50 basis points this year, moderating the previous 50bp forecast.

Shares in WPP dropped more than 3 per cent in early trading, exacerbating a decline that has wiped more than a third from WPP’s market value this year, putting it well behind peers such as Omnicom and Publicis.

Read said he was “not pessimistic about 2023”, but WPP and its rivals have yet to offer guidance on what the economic uncertainty may mean for their medium-term targets

“At the moment clients continue to invest, we have strong business, and we have had a good run of new business . . . these are all reasons to expect our business to be relatively resilient next year,” he added. “At the same time there is this macro backdrop and we are not naive about what that may mean.”

WPP beat analyst forecasts with organic growth of 3.8 per cent in the three months to the end of September. But the performance lagged behind other agency groups because of WPP’s stronger comparables last year and its greater reliance on markets outside the US.

Economic disruption has already started to hit parts of WPP, with sales in China down 9 per cent in the three months to the end of September because of Covid lockdowns. WPP raised guidance for 2022 revenue growth to 6.5 to 7 per cent, an increase from the previous 6 to 7 per cent range.

Alphabet chief executive Sundar Pichai noted the “tough” advertising market as he reported slowing sales growth and a fall in ad sales at YouTube. Spotify also said that the “challenging” economic environment had hit ad spending.

But at the same time all four big advertising agency holding groups have raised forecasts for this year, suggesting the conglomerates have so far emerged unscathed by the digital ad market troubles. Clients of WPP, such as Coca-Cola, have indicated they intend to increase ad spending plans in the coming months.

Read said the WPP business had proved “surprisingly resilient to some”.

“It is in part because we tend to work with the world’s largest companies, we tend to work across a broad range of services,” he said. “While we do do advertising, we are not just an advertising company.”

Read declined to say whether WPP planned to continue significant share buybacks next year, instead noting his priority was to “invest in the business organically and by acquisition”.

“There may well be interesting opportunities for that next year,” he said, noting there may be “more realistic valuations” in areas such as ecommerce and tech where WPP has sought to expand.