WPP issues second profit warning as tech clients retrench

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WPP has been forced to issue its second profit warning this year as clients in the technology sector cut spending further and its key Chinese market faltered.

The London-listed advertising agency more than halved its forecast for net revenue growth in 2023 to 0.5-1 per cent, down from a previous range of 1.5-3 per cent. It also reduced its forecast for operating margin for the year.

WPP said it would update investors in January on its strategic plans to drive growth, cut costs and increase profits over the next three to five years.

Shares in the group have dropped more than a fifth this year, leading to speculation among analysts that the company could become a takeover target. Shares fell 4 per cent in early trading on Thursday.

Mark Read, chief executive of WPP, said the quarter had been tougher than expected because of more “cautious spending” by technology clients. He told the Financial Times that spending in the tech sector had fallen further in the third quarter, pointing to results from Meta on Wednesday that showed its marketing spending was down almost a quarter.

“We are in a tough macroeconomic environment,” he added.

The advertising group first warned in August that annual forecasts would be hit by the lingering effects of the post-pandemic slowdown in the tech industry, of which its clients include Meta, Google and Microsoft.

Net revenue in the US dropped 4.2 per cent in the third quarter as a result. The fall was matched in China, WPP’s fourth-largest market, where the group said a slower than expected recovery had hit spending with its creative agencies.

The FT reported on Friday that police had raided the Shanghai offices of WPP-owned media agency GroupM and held a senior executive for questioning over bribery allegations. WPP has since dismissed the executive and said it was co-operating with Chinese authorities.

Rivals such as US-based Interpublic have cut forecasts this year, while former WPP chief executive Sir Martin Sorrell’s S4 Capital has also issued profit warnings after lower than expected marketing spend by clients.

WPP on Thursday announced a restructuring of its business units, which it said would drive revenue growth and yield cost savings of at least £100mn a year in 2025.

Read said that the changes would accelerate plans to cut costs and bring together overlapping parts of WPP’s business. He declined to say how many jobs would be lost but added that the company would seek to keep losses to a minimum.

He also highlighted the potential for AI to improve efficiency and productivity across the business over the next five years.