Europe Markets: WPP issues second profit warning of 2023 as tech sector trims ad spending - WealthInsider

WPP, one of the world’s biggest advertising groups, delivered its second profit warning of the year after activity in China stuttered and companies in the technology sector reduced spending.

Shares in London-listed WPP WPP, -0.69% WPP, -2.23% dropped more than 2% to a fresh three-year low after chief executive Mark Read said: “Our top-line performance in Q3 was below our expectations and continued to be impacted by the cautious spending trends we saw in Q2, particularly across technology clients.”

“The rest of world saw continued growth in the quarter but was held back by China where a slower than expected macro recovery impacted our integrated creative agencies,” WPP added in a third quarter trading statement released Thursday, in which it halved its forecast for net revenue growth in 2023 to 0.5% to 1%, down from a previous range of 1.5% to 3%.

Analysts noted that the drop in spending by the technology sector chimed with comments about faltering advertising made late Wednesday by WPP’s client Meta Platforms META, -4.17%, and together they pointed to signs of a faltering global economy. WPP’s clients also include Alphabet’s GOOG, -9.60% Google and Microsoft MSFT, +3.07%.

“When advertisers are in trouble, it is typically not a good sign for the economy,” said Danni Hewson, head of financial analysis at AJ Bell. “The ad space is seen as a good bellwether because companies will increase spending on ads when they are feeling positive and scale back during tougher times. WPP has significant scale, breadth and geographic reach, making this even more relevant,” Hewson added.

WPP also announced a restructuring of its business units, which would boost revenue growth and deliver cost savings of at least £100mn a year in 2025, it said.

“WPP is doing what it can to combat these challenges, including consolidating and streamlining its offering. That could mean the business that emerges from all this could be stronger than what it started with, but there are considerable speed bumps to traverse first.” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

WPP’s warning pressured other European media agencies, with Paris-listed Publicis PUB, -1.26% falling 2% and London-listed S4 Capital SFOR, -5.25%, run by former WPP boss Sir Martin Sorrell, dropping more than 8% to a fresh record low.

The broader European market was under pressure as investors absorbed another poor session on Wall Street and some generally disappointing company earnings reports.

The FTSE 100 UK:UKX in London fell 0.6% as Standard Chartered STAN, -10.17% shed nearly 10% after the bank posted a 54% drop in its pretax profits, due to a nearly $900 million hit to the value of its Chinese real estate and banking divisions.

The CAC 40 FR:PX1 in Paris lost 0.7% while Frankfurt’s DAX DX:DAX shed 1.4% as poorly-received results from Mercedes-Benz MBG, -5.90% led shares of German carmakers lower. Also not helping the mood in Germany was a near-40% dive for shares of Siemens Energy ENR, -29.43% after it issued a profit warning and sought support from Berlin.

The euro EURUSD, -0.06% was down 0.3% to €1.0540 to the dollar as traders expected the European Central Bank on Thursday to leave its deposit rate unchanged at 4% following its policy meeting.