WPP suffered the worst stock slump since 1999 after chief executive Martin Sorrell slashed the profit outlook and predicted a year of no growth, giving already jittery investors another reminder that the advertising industry is undergoing its most dramatic upheaval in decades.
Long-term earnings growth will be as little as 5 per cent and twice that at best, compared with a prediction of as much as 15 per cent previously. The year got off to a “slow start”, WPP said, continuing a trend from 2017 that saw flat margins and sales.
Investors responded by pushing the shares down as much as 15 per cent, briefly prompting a stock suspension.
“There’s a real sense of shock and awe at what’s happened to his business model,” said Alex DeGroote, media analyst at Cenkos Securities. “This is a stark reminder of the significant challenges WPP faces.”
The steep slump of the industry leader is the most dramatic sign yet of the deepening crisis facing Mr Sorrell as digital competitors hollow out his core business. Major customers such as Unilever are holding back ad spending to cut costs, while digital players such as Google and Facebook are cutting out advertising agencies that act as middle men.
WPP’s advertising sales are a bellwether of strength in the global economy, as companies tend to expand or cut their marketing budgets depending on how well their businesses are performing.
Thursday’s stock slump deepens an already poor performance of WPP, which lost more than a quarter of its value over the course of last year.
Having founded the company in the 1980s, Sorrell is the biggest individual shareholder at WPP, with a stake of about 1.4 per cent.
The ad giant said it was responding by trying to break down silos among its various creative, ad buying, strategy and public relations businesses to draw on top talent and seamlessly serve clients. After “not a pretty year” in 2017, WPP is “upping the pace” of its effort to combine its global team, Mr Sorrell said. – Bloomberg
