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The impact of the tech downturn has led to a decrease in advertising spending by US technology groups, causing WPP, the world’s largest ad agency, to lower its annual revenue forecast. Despite originally predicting growth of 3 to 5 percent, WPP has now adjusted its like-for-like growth forecast to a range of 1.5 to 3 percent.
In the first half of the year, WPP experienced a 4.9 percent drop in revenues from the tech sector, with US revenues falling 4.5 percent in the second quarter. Mark Read, the CEO of WPP, attributes these declines to cuts in spending by technology clients and reduced technology project spend, particularly in the US. As a result, WPP’s shares fell 7 percent to £7.87 in early morning trading in London.
This downturn in the tech sector’s ad spending aligns with recent outlooks from other rival agencies, who have also seen companies trimming their marketing budgets due to economic uncertainty. For example, Interpublic halved its growth forecast, Omnicom fell short of analyst expectations, and S4 Capital issued a profit warning. Despite the challenges, Read acknowledges that cyclical changes are inherent in the industry and believes that WPP will rebound as technology clients eventually adjust their marketing strategies.
Revenues from the tech sector make up nearly 18 percent of WPP’s overall business. In the first half of the year, WPP’s revenues reached £7.2bn, representing a 3.5 percent increase on a like-for-like basis compared to the same period the previous year. However, pre-tax profits for the first six months of the year decreased from £419mn in 2022 to £204mn in 2023.
The decline in tech companies’ ad spending mainly affected WPP’s integrated creative agencies, such as VMLY&R and Wunderman Thompson, which reported a 2.3 percent decline in the second quarter. Another sector that experienced a significant drop in ad spend was retail, primarily due to the loss of Walgreens Boots Alliance as a client.
Analysts, like Conor O’Shea from Kepler Cheuvreux, note that agencies heavily reliant on the tech sector are particularly vulnerable. With the end of the era of abundant marketing spend, tech companies are resetting their marketing budgets. Microsoft, for instance, has reduced ad spending by 40 percent year on year, citing a decline in Windows advertising.
Despite the challenges, Read remains optimistic about the future. He expects technology clients to eventually return to more normal levels of marketing spend once they navigate through this period of adjustment.
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