Advertising powerhouse WPP (LON:WPP) share price has rallied despite reporting like-for-like revenue and net sales falling in both the third quarter and first nine months of the year. In the third quarter constant currency net sales were up 0.9%, however this was largely driven by acquisitions, which is why like-for-like net sales were down 1.1%. Like-for-like revenue was also down in the quarter by 2%. Both net sales and revenue for the first nine months is down 0.7% and 0.9% respectively.
These results have led to WPP revising their forecasts downward for the full year. The firm expect like-for-like revenue, net sales growth and constant currency operating margin broadly flat for the year. This revision comes two months after the company slashed growth forecasts, causing their share price to plummet.
In their report WPP has said that “the general macro-economic environment seems to be very consistent. Generally, low GDP growth at about 3-4% per annum nominal, perhaps a little weaker recently, but consistently subtrend i.e. in comparison to the pre-Lehman period. At the same time, low inflation and, therefore, very little pricing power and a consequential focus on cost to maintain and improve profitability”.
This shift in the economic environment, according to WPP, is a “different kettle of fish,” that has led to “top line growth slowing across the industry”. The reasons given for this have been threefold.
The first is the rise of digital search and social platforms, such as Google and Facebook. These now account for 75% of digital advertising, comprising 30% of total advertising. The aggressive expansion of these companies is claimed to be disrupting the industry.
It has also been suggested that the intrusion of management consultancies in the digital space that are targeting acquisitions of small agencies and talent. These agencies suggest that they may be overspending and may promise an audit or review that will only cost a proportion of any cost savings generated. A philosophy fee of cost cutting has seen spending on marketing squeezed.
Finally central bank loose monetary policy has resulted in consistently low interest rates which, in turn, has caused some distortion in capital allocation. This has led to variable cost reduction and encourages a short-term focus, especially in the consumer goods sector.
WPP share price had risen by 2.24% to 1,324p at the time of writing.