WPP Issues Second Profit Warning as China Slows and Tech Sector Cuts Spending
WPP, a global advertising group, has issued a second profit warning as sluggish spending in China's tech sector affects its Q3 performance. The company revises its net revenue growth forecast and announces a strategic restructuring. The broader Europ...
Troy D. Hanson
October 26, 2023
Shares in WPP, one of the world's largest advertising groups, plunged more than 2% to a three-year low as the company issued its second profit warning of the year. CEO Mark Read stated that sluggish spending in the technology sector, particularly among clients in China, had impacted the company's top-line performance in Q3.
Impact on Q3 Performance
WPP reported that while the rest of the world experienced growth during the quarter, its integrated creative agencies in China were hindered by a slower-than-expected macroeconomic recovery. Consequently, the company revised its net revenue growth forecast for 2023, slashing it to a range of 0.5% to 1%, down from 1.5% to 3% previously projected.
Tech Sector Spending Decline
Industry analysts observed a correlation between the fall in advertising spending by technology companies and recent comments from WPP's client, Meta Platforms. These developments, coupled with the tech sector downturn, raised concerns about a weakening global economy. Notably, WPP also serves clients such as Google and Microsoft.
Danni Hewson, Head of Financial Analysis at AJ Bell, emphasized that fluctuations in the advertising industry often serve as an indicator of broader economic trends. When advertisers scale back on spending, it often reflects a lack of confidence in the economy. Given WPP's expansive reach and influential role, this downturn is particularly significant.
Restructuring and Future Plans
Additionally, WPP announced a strategic restructuring of its business units. This initiative aims to stimulate revenue growth and generate annual cost savings of at least £100mn by 2025.
WPP's latest profit warning underscores the challenges faced by advertising firms as they navigate a complex and uncertain global economic landscape.
Challenges Ahead for WPP and European Media Agencies
WPP, one of the leading media agencies in Europe, is bracing for challenges in the industry. In an effort to combat these challenges, the company is consolidating and streamlining its offering. While this move may result in a stronger business, there are still significant obstacles to overcome.
The warning from WPP has also put pressure on other European media agencies. Publicis, listed in Paris, saw a 2% drop, while S4 Capital, run by former WPP boss Sir Martin Sorrell and listed in London, experienced a significant decrease of over 8% to a new record low.
Meanwhile, the broader European market is facing its own pressures. Investors are grappling with another poor session on Wall Street and disappointing company earnings reports. As a result, the FTSE 100 in London fell by 0.6%, with Standard Chartered being hit hard with a nearly 10% drop in pretax profits due to a significant loss in the value of its Chinese real estate and banking divisions.
In Paris, the CAC 40 lost 0.7%, while Frankfurt's DAX saw a 1.4% decline. The poor reception of Mercedes-Benz's results led to a decrease in shares of German carmakers. However, the mood in Germany was further dampened by Siemens Energy which experienced a near-40% dive after issuing a profit warning and seeking support from Berlin.
As investors navigate these challenges, the Euro has also seen a decline. The Euro fell by 0.3% against the dollar as traders anticipate that the European Central Bank will maintain its deposit rate at 4% following its policy meeting on Thursday.