Almost £1.5bn was wiped off the market value of WPP yesterday after the world’s biggest advertising firm admitted 2017 “was not a pretty year”.
Shares plunged as much as 15 per cent as stock markets opened – WPP’s biggest drop since the 1990s – prompting a four-minute trading suspension. They recovered thereafter to end the day around eight per cent lower.
Annual revenues fell 0.9 per cent to £15.2bn, WPP’s worst year in growth terms since 2009.
“We had challenges in 1991/2, I remember in 2001/2 and 2009. They weren’t the same challenges as this because obviously, times have changed,” Sorrell told City A.M.. “This time round clearly there are technological changes, disruption, transformation affecting our clients and ourselves.”
Long investors were also dismayed at the FTSE 100 firm downgrading its future earnings guidance from 10-15 per cent to 5-10 per cent. Sorrell said:
It is what we see at the moment. Nothing that three per cent revenue growth wouldn’t put right.
Hedge funds, however, rejoiced with bets against WPP at one stage yesterday £100m higher. Marshall Wace, which booked large profits from Carillion’s share collapse last year has the largest short position against the advertising giant.
Hargreaves Lansdown equity analyst George Salmon said: “Nobody was expecting these results to sparkle, but WPP saying trading conditions have deteriorated to the extent it doesn’t think it’ll deliver underlying growth next year has come as a surprise.”
WPP cut revenue targets three times last year after losing key accounts with corporate behemoths such as AT&T and VW. Unilever and Procter & Gamble have also reduced their spend.
Sorrell rejected the notion WPP was suffering at the hands of tech giants such as Google and Facebook, which are parking their tanks on advertiser's lawn.
“We do not happen to think Facebook and Google are disintermediating us. That’s one argument people make. The second one is other consultancies eating our lunch – I don’t think this is so,” he said.
WPP said it will accelerate a strategic overhaul of its business. It wants to simplify the structure of the 200,000-person strong group and align the vast network of member firms.
Sorrell said this would not mean job cuts. “It means coalescing the talent we have in a more effective way.”
AJ Bell investment director Russ Mould said: "The company, essentially a conglomerate of lots of individual advertising businesses, plans to merge several of its agencies to create a simpler proposition for clients and strip out costs.”
The question for investors is whether the problems WPP is facing are cyclical and therefore temporary, which is WPP’s view, or reflect wider structural shifts in the industry.