Reed: Magnitude Of Q2 Tech/Telecom Softness Took WPP By Surprise


Reed: Magnitude Of Q2 Tech/Telecom Softness Took WPP By Surprise



by , Columnist, August 4, 2023


WPP CEO Mark Reed told analysts on an earnings call today that while the firm was expecting tech and telecom sector softness in the second quarter the company was surprised at the magnitude of the shortfall in the sector’s marketing spend during the period. 



And if WPP was surprised, it’s a good bet that investors were too, which probably explains the roller coaster ride company shares took Friday after the firm released its Q2 earnings. In early trading shares fell 8% before recouping much of the decline. At close shares were off about 3.5% on the London Exchange. 



Reed told analysts that tech/telecom accounts for about 18% of WPP’s revenue. Hardest hit agencies were Wunderman-Thompson, VMLY&R, and AKQA, which lost out on a lot of cancelled or postponed project work from the sector. 



The good news: the damage for the most part was limited to the U.S. which posted an organic revenue decline of 4.1%. Outside the U.S., Reed said, client spending was “pretty robust” leading to growth of 3.2% to 5% in most markets. About 63% of the firm’s overall business falls outside the U.S. 



The tech/telecom falloff in Q2 had a 1.9% impact on WPP’s overall revenue, Reed said. And he stressed that the firm did not lose any clients in the category and that the decline was all about companies adjusting budgets to address their own revenue shortfalls. 



“It should recover,” said Reed, adding that the timing is hard to predict. Many of the big tech companies are in what Reed described as an “innovation cycle,” where new products have been developed while the companies are still figuring out the right go-to-market strategies for them. Once that happens, recovery should ensue, he said. 



The company is paying strict attention to its cost base. Moves include a consolidation of its real estate portfolio which will incur some $220 million in non-cash impairment charges this year but that will also contribute to a goal of $600 million in annualized savings. Other targeted savings revolve around back office, IT and production operations, according to Joanne Wilson, the company’s new CFO. 


And if WPP was surprised, it’s a good bet that investors were too, which probably explains the roller coaster ride company shares took Friday after the firm released its Q2 earnings.

 

 

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