Ad agency WPP cuts sales outlook over caution from U.S. technology companies

By Steve Goldstein

The world's largest advertising company cut its sales outlook, and put the blame on one sector: U.S. technology companies.

WPP shares (WPP.LN) slumped 7% in London after it cut its sales view for the year, now seeing growth on a comparable basis of between 1.5% and 3%, versus previous guidance of between 3% and 5%. Comparable sales growth was 1.3% in the second quarter and 2% for the first half.

"The part of our business where we have seen a shortfall has been in the United States with the gap versus our expectations in the prior year really being focused on technology clients and technology-related projects," said CEO Mark Read.

"We did flag earlier this year that we've seen some slowdown in spending from technology clients on marketing, but this accelerated in the second quarter," he said, according to a transcript of the conference call provided by FactSet. "The reasons differ by client and actually not all clients are down, but the general trend is one of cost control, focus on margins after a significant slowdown in their own rapid rates of growth, and perhaps a different stage of the innovation cycle."

Read said 18% of WPP's business comes from technology companies.

He alluded to the interest in generative artificial intelligence that many companies still are trying to incorporate into products and services. "Technology companies are not entirely clear on what the business model is associated with that," he said. "I would expect that to revert. But I think that we're rightly being cautious about the likelihood of that happening in the course of this year."

Rivals Interpublic (IPG) and Omnicom (OMC) also have flagged tech-company caution.

Related: Tech stocks look strong, but here's a sign the sector is actually under a lot of stress

-Steve Goldstein

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08-04-23 0946ET

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