Advertising agency WPP (WPP) belied the sickly economic backdrop to report a very healthy first quarter on Wednesday.
Typically spending on advertising and marketing is closely tied to the health of the economy and initial enthusiasm for the stock dried up as investors signalled their concern that the company will struggle to maintain its recent momentum.
By mid-morning WPP had surrendered its initial gains to trade 0.3% lower at 987p. The firm reported first quarter revenue up 9.5% on a like-for-like basis and said it expected full-year growth in the region of 5.5% to 6.5%, up from previous guidance of around 5%.
Chief executive Mark Read (pictured) reported that ‘demand is strong for our services, particularly in digital media, e-commerce, data and marketing technology’.
Read has led a turnaround at WPP following the acrimonious departure of founder Martin Sorrell in 2018. Much of this has involved simplifying a business built up through lots of acquisitions and which had, as a result, a lot of moving parts.
SIGNIFICANT RESTRUCTURING
Yesterday the company announced a significant restructuring of its media buying Group M business by merging its MediaCom and Essence operations into EssenceMediacom.
Media buying involves buying ad space for clients across different platforms - a business activity which is being disrupted by the large social media platforms which have been cutting out the middleman by selling space direct to companies.
Numis analyst Steve Liechti commented: ‘While we worry about macro threats, ad markets remain strong near term due to lock down recovery/easy comps plus structural digital boost.
‘Also, we see WPP self-help momentum as it shifts focus more towards growing digital markets.’
His counterpart at Shore Capital Roddy Davidson said: ‘We are pleased to note the strong progress and increased guidance highlighted above which taken together reinforce our conviction that, notwithstanding current geo-political developments, WPP is extremely well placed to drive growth by harnessing its deep digital skill set, extensive resources and comprehensive global offering to add substantial value to its blue-chip client base and capitalise on a positive medium-term advertising spend backdrop.’
