WPP Earnings: Higher Exposure to Tech Clients and Lack of a Simple Solution Pitch Affecting Growth

WPP WPP reported another disappointing quarter, unlike two of its largest competitors, Publicis and Omnicom. Like IPG, WPP’s higher exposure to technology clients, the largest of which have cut their advertising and marketing spending, drove organic net revenue down. We expect most firms in that sector to increase their spending in 2024.

However, WPP’s elevated large account losses, which include Pfizer, Uber, and Walgreens, are a bigger concern. While it has gained some momentum with account wins in the second half of this year, including Nestle and Verizon, we expect the net impact of account pitches from this year and late last year on organic net revenue in 2024 to be negative.

While the firm has media and creative capabilities at or above its competitors, it has had difficulties presenting them as one simple solution to potential and existing clients. Its previous attempts to resolve this by horizontally integrating its agencies and in-house technology have not been successful. We look for the firm’s more aggressive integration efforts to turn that around and return organic net revenue growth in the second half of next year and beyond, assuming an accommodating economic environment. Those efforts include integrating creative agencies VMLY&R and Wunderman Thompson into VML, and standardizing and streamlining platforms used by its media agencies under GroupM.

We also believe that WPP will be defending fewer accounts next year and will see opportunities to win large new accounts, such as Amazon, next year.

We have reduced our revenue projections and now value WPP at GBX 1,250 per share, down from GBX 1,340. The shares of this narrow-moat firm are trading at a 40% discount to our fair value estimate and offer a 5.4% dividend yield.