Key Points
- WPP may be losing some business. Typically when an Ad Agency holding company losses business, margins are strong until the retainer revenue is fully recognized.
- All the agencies were weak. Actually WPP 2Q17 results which were inline to the sector, albeit at the low-end. However the color on July (sales down $4.7%) and the outlook +2% is negative.
- US was weak for WPP. Results reflect share losses in the US when compared to OMC, IPG and MDCA but again given 2.6% GDP growth the entire industry should be doing better.
What is at play here? Grey Swans
- In the US vehicle sales are down, poor sales is cyclical to the auto industry and there is also a glut of vehicles in the used market where prices are down 17% Y/Y according to Bloomberg.
- Retail Armageddon. Amazon is killing the retail industry, just drive down any Suburban street in the US. Each brown box represents % losses for WPP retailer clients.
- Healthcare, from 2014 to 2016 the ACA was a catalyst for advertising now in the US the ACA is a head wind.
- Digital advertising, media buyers are pushing back on the lack of transparency in digital markets, view-ability is a concern, and TV ratings down double digits hurts the entire marketplace.
- Lack of the next big experiment, as advertisers know Facebook, Instagram, Twitter, and Snap. There is no great social media experiment to develop a strategy against, and those revenue experiments benefit the Agencies.
- Trump, the failure of the US Congress to pass legislation may have CMO’s concerned about US GDP Growth therefore they are not adding to budgets despite good GDP numbers currently. On the programming front while the “Fake News” is getting great TV ratings but what advertiser wants to associate themselves with negative programming and political native advertising.
CLICK below for the WPP Results slide deck
wpp_interims_presentation_aug17
Ten X Research 