WPP cut its sales forecast for a second time in three months, as clients further reduced marketing spending, adding to evidence of the advertising industry’s distress.
The world’s largest ad company said that sales growth, excluding currency swings and takeovers, is expected to be “broadly flat” in 2017. London-based WPP had previously lowered its growth forecast to between zero and 1%.
WPP is having its worst year since the financial crisis, hit by some of its largest clients, such as Procter & Gamble and Unilever, scaling back advertising budgets.
Pressure from activist investors and companies struggling with disruption in their industries are the biggest contributors to reduced marketing spending, chief executive, Martin Sorrell, said.
“There is an increasing focus on cost-reduction,” he said. “These conditions will probably continue, maybe at less stressful and lower levels, after one-time reductions this year.”
Shares of WPP had lost 29% this year, leaving them at a “compelling price point”, Pivotal Research analyst, Brian Wieser, said in a note to clients, as he upgraded the stock to buy.
“It should never be all doom and gloom for agencies,” Mr Wieser said, adding, “there is still significant value in the stock.” The shares advanced 2.4%, after earlier falling as much as 2.7%. In August, the stock had its biggest slump in 17 years, after WPP slashed its full-year net sales growth forecast from 2%.
Troubles for WPP, which also works for brands such as Ford and Marks & Spencer, have been replicated across the advertising industry. Competitors, Publicis, Interpublic, and Omnicom all reported falling third-quarter revenue this month.
In addition to cost-cutting by clients, rising competition from consulting firms and the trend for advertisers to work directly with Facebook and Google on their digital marketing, are putting agencies under pressure, said Paul Sweeney, an analyst at Bloomberg Intelligence.
Agencies have seen particular pressure in their high-margin ad-space buying businesses, amid calls for greater transparency over fees and advertisers’ media-buying in-house.
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