The world’s biggest advertising firm WPP reported a “resilient” performance in the first half of the year despite plunging profits as they start to build out AI plans.
WPP reported profit before tax for the first half of 2023 dropped 51 per cent to £204m, compared to £419m compared to the first half of 2022.
Shares tumbled nearly seven per cent on the news, edging back up only slightly in the afternoon.
However, first half revenue was £7.2bn, up 6.9 per cent year on year, as GroupM, WPP’s media planning and buying business, grew “consistently” across all regions during the first half of 2023, “benefiting from continued client investment in media,” WPP said.
Led by GroupM, the UK experienced the strongest growth – up nine per cent in the second quarter – as consumer packaged goods and healthcare were strong points of spending.
While China gradually returned to growth, lower technology spending led to a slowdown in the US.
“Despite short-term challenges, our technology clients represent an important driver of long-term growth,” said Mark Read, Chief Executive Officer of WPP.
In the AI space, WPP partnered with leading players including Adobe, Google, IBM, Microsoft, Nvidia and OpenAI and are delivering AI-powered work for large clients including Nestlé, Nike and Mondelēz.
Read said: “We have exciting future plans in AI that build on our acquisition of Satalia in 2021 and our use of AI across WPP.
“AI will be fundamental to WPP’s future success and we are committed to embracing it to drive long-term growth and value.”
According to WPP, AI is already used “extensively” across their business, especially in GroupM and in Hogarth, their creative production business.
Earlier this year, chief of WPP Mark Read called artificial intelligence a “massive opportunity to optimise creative” work rather than representing a threat.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, commented on the results: “UK advertising giant WPP has downgraded full year like-for-like revenue guidance to 1.5% – 3.0%, from 3.0% – 5.0%.
“Technology spending, especially in the US, has slowed, leading to a dent in performance from the group’s substantial integrated creative agencies. This outcome is unwelcome but not wholly surprising, given that corporations are in wait-and-see mode when it comes to splashing the cash and handing margin over, at a time when demand is very tough to profile.
“While demand for WPP’s suite of services hasn’t been totally washed out, it has faded this half, and investors will be wanting to see a clear path to return to full colour. Harnessing AI correctly, and swiftly, could be one way to propel large amounts of growth, but change of this magnitude always comes with risk.”
“Advertising agencies are a good proxy for the state of the economy,” said Dan Coatsworth, stock market analyst at AJ Bell.
He explained: “If corporates are worried about the near-term outlook, they cut back on advertising and marketing. If they’re bullish, they spend more on promotions.”
“Tech is a highly competitive market and to stand out from the crowd tech firms will have to keep dishing out the dollars on promotional activity, so WPP will no doubt be banking on the sector downturn being short-lived.
“Rival agency S4 Capital last month issued a similar warning with tech clients being cautious. Interpublic and Omnicom have also disappointed with their latest updates, suggesting the advertising and marketing industry is going through a cyclical downturn,” Coatsworth said.