S4 Capital, Sir Martin Sorrell’s advertising group, lost a quarter of its market value on Monday after the latest of a series warnings about revenues and profits.
After a slower summer than expected, the group predicted that revenues would be lower in 2023 and profits margins smaller.
S4 cited the more challenging macroeconomic conditions around the world and clients’ caution due to recession fears. It has caused its clients, including big brands and tech companies, to take longer to make their decisions. Profitability is also below budget.
S4 shares fell by 28 per cent to 68p. This is less than one tenth the peak price of 878p in 2021.
Jefferies analysts said that the second warning in two months on revenue growth would have a negative impact on the “already fragile confidence of the market” regarding S4’s long-term profit goals. It cut revenue and earnings forecasts.
Sorrell predicts that the weak conditions will continue into next year. He said that clients were very cautious. “CEOs tend to be very optimistic, but the mood is different in companies.”
He cited the fears of some clients about a recession, the impact of the ongoing war in Ukraine, and the potential for political threats like the dispute between China and Taiwan.
Sorrell, who was fired from WPP at the end of 2018, founded S4 with the ambition to build one of world’s largest digital advertising companies. He has adopted an aggressive acquisitions strategy, purchasing dozens of media companies and expanding operations around the globe.
After a series of profit warnings, and an accounting problem last year, the company’s shares are now worth a fraction of their previous value.
S4 has reduced the number of employees by close to 500, bringing it to 8,550. It also promised to “continue taking action” to reduce costs. The group is less able than before to fund further acquisitions with its devalued share.
The company reported a profit before tax of £23.2mn for the six-month period ending June 30. This is lower than the £85.6mn loss in the same time last year. The company’s revenue was £517mn. This is up 15.8% on a reported base, but only 2.5% like for like. In 2022, the like-for-like revenue will be lower and operating earnings margins are expected to range between 12 and 13.5 percent.
Sorrell blamed the slow recovery from the pandemic for the poor performance of the company in Asia, but said that the US had been better.
He stated that the company will continue to focus its efforts on efficiency, noting that its biggest clients have continued to grow its business.
The creative operations of the company, which create content for clients, were particularly weak. Revenues fell by 2.5 percent on a comparable basis, whereas its data, digital media, and technology services operations grew.
S4 stated: “Content experienced a challenging first half of the year, especially in May and Juni with one or more technology clients as well as regional and local opportunities.”