Sir Martin Sorrell has said “it’s not all doom and gloom” for digital advertising even as the social media marketing boom deflates, but warned that large companies were favouring campaigns that led to immediate sales over long-term brand building.
Speaking as his digital ad business S4 Capital reported a 29 per cent jump in quarterly net revenues to £250mn, the marketing veteran argued that commentators had overstated an industry slowdown. “It’s true growth has slowed but it’s not as bad as people would have you believe,” he said.
S4’s market value slumped earlier this year after a profit warning and delayed results shook investor confidence in the company, which had expanded rapidly through a series of acquisitions. Sorrell founded London-listed S4 after he left WPP in 2018.
While the figures on Monday pushed shares in S4 up 4 per cent in morning trading, Sorrell said he recognised the company had a “long way to go” to fully rebuild investor confidence. “They want to see consistency and delivery of results.”
S4 is seeking to restore its standing in the City at a turbulent time for the online advertising market. Privacy changes, particularly those Apple has implemented for iPhone users, have made it harder for marketers to profile consumers based on their browsing habits.
Meta, owner of Facebook and Instagram, has been particularly hard hit after years of rapid growth, with its ad revenues down 3.6 per cent year-on-year in the third quarter.
Several groups meanwhile paused advertising on Twitter following Elon Musk’s takeover over concerns about its content and controls.
However, Sorrell said some of the weakness at particular platforms was explained by currency fluctuations and that Twitter accounted for only 1 per cent of global digital ad revenues.
“I’m not saying it’s a rounding error but it is relatively small,” he said of Twitter. “People forget about the new platforms,” he added with reference to Apple, which has been making inroads into advertising. “It’s not all doom and gloom.”
Still, Sorrell said clients were favouring so-called performance advertising, which aim to generate immediate sales, over strategic brand awareness campaigns. This was despite evidence that those who maintain marketing expenditure through downturns tend to benefit in the longer term.
“Needs must when the devil drives,” he said. “In this environment clients will be looking for performance.”
“It is unrealistic to believe, with the pressures we’ve seen on the world economy, that clients won’t look at their costs carefully,” Sorrell added.
S4 maintained its target to generate full-year operating earnings before interest, taxes, depreciation and amortisation of about £120mn. However, the company is forecast to remain loss making at a pre-tax level due to acquisition-related expenses.
The company said it had taken a more “measured” approach to hiring and S4’s total headcount ticked down slightly in the quarter to 8,960. The company had blamed labour costs for its profit warning in the summer.
Even after a share price recovery from lows hit in July, S4 stock remains down almost a quarter in 2022.