- London-based ad agency WPP has reduced its profit outlook for the second time in consecutive quarters.
- Big Tech companies, including Alphabet, Meta, and Snap, have reported rebounds in ad revenue.
- WPP CEO Mark Read mentioned that Big Tech clients are spending cautiously and have reduced their marketing budgets.
- WPP’s US net revenue fell by over 4% in the most recent quarter, and its growth forecasts have been slashed.
- In addition to the revenue slip, WPP is facing negative press in China after a senior executive was detained over allegations of bribery.
Big Tech Sees Rebound in Ad Revenue
While many companies have been cutting back on their marketing budgets, Big Tech companies like Alphabet, Meta, and Snap have reported rebounds in ad revenue. Snap saw a growth in ad sales after two declining quarters, Google experienced growth in YouTube ad revenue after three quarters of declines, and Meta saw a 24% increase in ad revenue year-over-year. However, this increase in ad revenue doesn’t necessarily mean that Big Tech is investing more into their own marketing budgets.
WPP, which counts Meta, Google, and Microsoft among its clients, has mentioned that Big Tech clients are spending cautiously and have reduced their marketing spend. Mark Read, CEO of WPP, specifically highlighted that Meta had slashed its marketing spend by nearly 25% in the most recent quarter. As a result, WPP’s US net revenue fell by over 4% in the most recent quarter, and their growth forecasts have been cut in half to just 0.5%-1%. This setback follows an earlier forecast cut in August.
Challenges in China
WPP is facing not only financial challenges but also negative press in China. The company’s subsidiary, GroupM, had its Shanghai offices raided by local police, and a senior executive was detained over allegations of bribery. WPP has dismissed the employee and is cooperating with authorities. However, this is not the kind of publicity that WPP aims to generate.
Overall, WPP’s profit outlook has taken a hit due to the cautious spending of Big Tech clients and a decline in revenue. The company is also dealing with the aftermath of the bribery allegations in China. These challenges highlight the ongoing volatilities in the advertising industry and the impact it can have on advertising agencies like WPP.
Hot Take:
The struggles faced by WPP in the wake of reduced profit outlook and negative press demonstrate the delicate balance between big advertising agencies and big tech companies. While Big Tech is experiencing rebounds in ad revenue after a challenging period, it is evident that they are not prioritizing their own marketing budgets. This cautious approach by Big Tech clients like Meta and Google may reflect their confidence in their own platforms and the ability to reach their target audience without excessive marketing spending. However, for agencies like WPP, which heavily rely on the advertising budgets of these tech giants, the reduced spending poses significant challenges. It will be interesting to see how the relationship between Big Tech and advertising agencies like WPP evolves in the coming months as the digital advertising landscape continues to evolve.