- Stock falls 18%, wiping close on £1 billion off market cap
- Revenue and net profit have plunged over the past decade
- CEO Mark Read had already announced year-end departure
Investors might reasonably wonder what WPP (WPP) is anymore. It used to be a global advertising operation with whom large consumer businesses would spend hundreds of millions a year pushing their various products, services and brands and as such, acted as something of a bellwether of the global economy.
But the world has turned and WPP is struggling to retain its relevance in a landscape that is very different to the past. This year (to December), the company had been forecast to post around £12 billion of revenue, less than it did a decade ago, with lower margins and lower profits.
UGLY UPDATE
And that was before today’s ugly trading update. WPP now sees comparable revenue falling 3% to 5% for the year, versus February’s guidance that it would be flat to down 2%, after a second quarter in which sales slumped as much as 6%.
WPP said its first-half operating margin will drop between 2.8 and 3.3 percentage points year-on-year.
The shares plunged 18% to 429p, lows not seen since the aftermath of the Global Financial Crisis in 2009.
‘The downward revisions to the expected revenue for 2025 are material and demonstrate the danger of managing market expectations with an optimistic hat on, as a hoped-for improvement in new business wins has failed to materialise’, wrote Dan Coatsworth, investment analyst at AJ Bell.
While the uncertain economic backdrop is clearly unhelpful, some of its peers have fared better and WPP’s share price halving under outgoing CEO Mark Read’s tenure cannot be attributed to this alone. Advertising agencies have faced pressures from the dominance of Meta and Google-owner Alphabet (GOOG:NASDAQ) in online advertising, with AI another potential threat.
SHARE PRICE RETURNS SHOCKER
Share price total returns illustrate how much of a struggle to stay at the head of its game it has been, offering investors a disastrous -4% annualised return since 2015, and just 3.5% over five years. The FTSE 100 has done 4.6% and 13.2% over the same time frames.
‘If Mark Read had not already announced his departure from WPP at the end of the year then the company’s latest overview might have seen him come under significant pressure’, wrote AJ Bell’s Coatsworth. ‘Make no mistake, this is one ugly trading update.’
Current chair Philip Jansen – who used to run BT (BT.A) and has a background in corporate restructuring – faces potentially the biggest challenge of his career as he looks to appoint the right man to succeed Read and provide support for a turnaround in WPP’s fortunes.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (Martin Gamble) own shares in AJ Bell.
