Shares in Sir Martin Sorrell’s S4 Capital plunged as much as 27 per cent at market open after it reported a mix bag of updates for the first half of 2023, with a strong technology division failing to make up for a slow ads market elsewhere in the business.
The firm reported an operating loss of £6.4m in the first half, down from £69m the year before.
Investors took the news badly and shares plummeted before fluctuating between 24 and 27 per cent throughout the morning.
The digital marketing giant reported a revenue rise to £445.4m, an 18.7 per cent growth from the first half of 2022.
Data & digital media only crept up 2.4 per cent like-for-like, well below inflation, in a blow to Sorrell’s stated ambition of creating a digital powerhouse.
The firm continues to cut employees, with the content division next on the chopping block.
Like for like revenues are now expected to be down on the year, the firm told markets this morning.
Sir Martin Sorrell, chairman of S4, said: “We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.”
He added the company expects increased client activity and ramped up artificial intelligence initiatives to spark in the second half of the year.
S4 are already seeing an increase in viewing numbers as it encourages employees to use AI to speed up ad copywriting and amass data for ad targeting.
Sorrell has previously said AI is “more effective than a 25-year-old media buyer”.
Is it getting worse for S4?
With a potential recession on the horizon, companies may be stripping back ad budgets as they try to quash rising costs forced up by high inflation and rising interest rates.
“Advertising agencies are at the mercy of the economy,” said Russ Mould, investment director at AJ Bell, meaning S4 could struggle with growth during the current tough climate.
Sorrell’s firm has struggled to buck this trend for a while, having already slashed annual growth forecasts back in July due to the tech slow down, reflected in a major share price drop.
“S4’s shares are now down 69% since their year-to-date peak in February, illustrating how its fortunes are going from bad to worse,” said Mould.
And the unpredictable pendulum of AI could swing in either direction yet, especially as companies experiment with it to save themselves cash.
Victoria Scholar, head of investment at interactive investor, said: “There’s also a growing concern for the sector that the rise of artificial intelligence in-house may result in less demand for external ad agencies.”