Do WPP’s Q2 results point to a China crisis while Stagwell remains bullish?
The latest financial updates again show the full range of fortunes being experienced across the major marketing groups, as Green Square’s Barry Dudley explains.
/ WPP
On today’s WPP results call, Mark Read, the CEO, used words such as “satisfactory” and “firm.” And along with CFO Joanne Wilson, the term “headwinds” cropped up pretty often. So, it was no surprise to hear that LFL (like-for-like, another term for organic) revenues less pass-through costs were down 1% for H2 and down 0.5% in Q2.
One of the biggest factors behind this was a 24.2% decline in China in Q2 – a stark contrast to Publicis’s announcement a couple of weeks ago, where China was its highest growth geography at 10.5%.
The “rest of the world” and the UK were also down by 5.3% and 2.2%, respectively, but all other geographies were up: North America 2.0%, Western Continental Europe 0.3% and India a strong 9.1%.
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We saw some rather big global stock market drops on Monday, with Japan down 12% off the back of a US slowdown/talk of recession. While things seem to have stabilized, there is a good chance that this will be a factor for all businesses in H2 2024.
All of this has led to a downward revision in WPP’s full-year guidance of -1.0% to 0% growth in LFL revenues less pass-through costs.
Read talked through WPP’s strategic progress. Unsurprisingly, AI came first alongside WPP Open – it was refreshing to hear how they are using AI in “how consumers experience work,” not just how it may save costs operationally or make production more efficient (which were there, too).
Seeing an AI-generated Jose Mourinho in an ad was a welcome break in the call.
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Next up was the focus on progress within VML, Burson and GroupM, which now represent a whopping 70% of WPP’s sales. Along with the sale of FGS Global – for £604m cash after tax – the streamlining of the group is continuing apace.
Then came the awards, in particular WPP’s successes at Cannes Lions this year, which were impressive.
So, how does all this stack up with Stagwell, the self-styled “challenger holding company,” whose results were announced late last week? Well, they were much more at the bullish end of the spectrum.
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Organic net revenue growth – one of the best indicators of the trajectory of a business – was a very modest 1.2% in Q2. But this is off the back of 8% in Q1 and, most importantly, Stagwell reaffirmed its guidance on organic net revenue growth for the year of 5% to 7%. So, it is hoping for a strong H2.
The CEO, Mark Penn, referenced three things that will hopefully fuel this – a “flood of new business wins at the end of Q2,” which included General Motors work for 72andSunny and Anomaly, “media margin in the back end [of the year]” and strong performance expected in Advocacy.
Penn’s demeanor on the earnings call was very much one of someone presiding over a business that has momentum. Biden stepping out of the presidential race has reignited the Democratic party’s prospects, which Penn believes will flow through into what is already very strong growth in Stagwell’s Advocacy segment – 42% year on year. And new business, in general, seems to have moved to another level: “Average size of new business wins increased 65% YoY; 57% increase in deals exceeding $1m.” This certainly seems to be backing the “challenger holding company” mantra.
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No surprise that it is investing in technology, from AI and Google Cloud to Wondercave, its “innovative text messaging-based marketing platform.”
An area I found fascinating was how it intends to evolve its Cannes Sport Beach event, as it unlocked “unprecedented NB opportunities.” Who knew that getting people together face to face in a vibrant and inspiring physical environment could lead to great things!? Penn used the phrase “a shoemaker with shoes.” I’m looking forward to seeing what the next Sport Beach shoes look like…