WPP’s lower outlook reflects cautious spending trends from US tech clients, highlighting the impact of a weak advertising market and ongoing challenges in China. The company is taking steps to strengthen its competitive position and streamline operations through the creation of VML as the world’s largest creative agency and the further integration of GroupM.
In a recent announcement, WPP PLC has once again warned that its full-year revenue and profit margins will be lower than expected. The company cited a decline in advertising spending in North America and weak conditions in China as key factors contributing to the lowered outlook. WPP’s revenues less pass-through costs fell 5% in the fourth quarter, although on a like-for-like basis, the decline was only 0.6%.
The decline in the US market was particularly notable, as cautious spending trends from technology clients intensified. This trend had already led to a lowered outlook at the half-year stage and was further exacerbated in the fourth quarter. Despite growth in the UK, western Europe, and the rest of the world, it was not enough to offset the decline in North America and China.
Looking ahead, WPP has revised its guidance for 2023. The company now expects like-for-like revenue less pass-through costs growth of around 0.5-1.0%, down from the previously anticipated range of 1.5-3.0% in August and 3-5% earlier in the year. Additionally, the headline operating margin is expected to be 14.8-15.0%, excluding the impact of currency swings, compared to the previous expectation of 15.0%.
To address these challenges and strengthen its competitive offer, WPP has announced strategic initiatives. The company is creating VML as “the world’s largest creative agency” and integrating GroupM, its media investment group, further into the organization. This integration will result in common products and a single technology platform, streamlining operations and back-office functions. These initiatives are predicted to generate £100 million of annualized savings from 2025, with some impact expected as early as next year.
Mark Read, the CEO of WPP, emphasized the need to evolve the company’s offer to clients and simplify its business in a rapidly changing world. The performance in the past quarter fell below expectations, primarily due to cautious spending trends from technology clients. Read expects more impact from this trend in GroupM over the summer than in the first half of the year.
WPP has promised to provide more details on its strategic roadmap and actions to drive growth, efficiencies, and margin expansion at a capital markets day in January.
In conclusion, WPP’s lowered outlook reflects the challenges faced by the advertising industry, particularly in North America and China. The company’s initiatives to strengthen its competitive position and streamline operations through the creation of VML and further integration of GroupM demonstrate its commitment to adapting to the changing landscape. However, the company will need to navigate cautious spending trends and leverage technology such as AI to maximize returns on investments and drive future growth.
