A MAJOR pull back in spending by tech giants such as Amazon, Apple and Google led to a downgrade by WPP and raised uncomfortable questions about global economic growth today.
The world’s biggest ad company saw profits for the half-year tumble 51% to £204 million.
Growth forecasts for the rest of the year were slashed to between 1.5% and 3% down from 3% to 5% before, causing City brokers to slash share price targets.
WPP shares tumbled 62p, 7%, to 787p. They were well over 1000p at the start of the year.
CEO Mark Read insists performance is “resilient” in all areas “except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects”.
He pointedly didn’t blame the shake-up at Elon Musk’s Twitter, now called X, for the US issues but City analysts aren’t so sure.
Last week S4 Capital, the tech focused ad rival set up by former WPP leader Sir Martin Sorrell issued its own profit warning as clients slashed marketing budgets.
US rival Interpublic voice similar concerns.
A looming US election is normally good for ad agencies. Read says this one, given Trump inspired confusion, could just hurt the world’s biggest economy, citing a downgrade on US debt from ratings agency Fitch just the other day.
In the UK, things look brighter. WPP has won new business from easyJet, Pernod Ricard and Lloyds Bank, as bank profits rise and consumer desire for a proper summer holiday grows.
Nevertheless, JP Morgan cut its target price for the shares from 1260p to 1200p.
In London, WPP’s offices are 60% full. Read says the “best creative work” is done when people are together in offices.
The cut back in big tech spending is a reflection of strong growth during Covid for Amazon and the others, says Read.
“I don’t think we are heading for a recession. We are just a bit more cautious,” he told the Standard.
WPP has “exciting future plans” for AI, with robots already producing work for Nestle, Nike and Modelez.
“AI will be fundamental to WPP’s future success and we are committed to embracing it to drive long-term growth and value,” said the CEO.
Ad agencies are coming under pressure from watchdogs to make it clear when characters in ads are produced by AI so that people are aware they are being spoken to by a computer-generated image.”
Rob Newman, director of public affairs at the Incorporated Society of British Advertisers, said this summer: “The public deserves transparency — from it being clear when you’re being advertised to, to being sure that the voice doing the advertising is that of a real person.”
This week WPP backed out of a relationship with GB News following feedback from staff and other clients.
The half-year dividend is held at 15p, offering some reassurance to investors.
