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WPP (LSE:WPP) was already having a foul yr earlier than at this time (9 July). Nevertheless it simply acquired a hell of so much worse for this FTSE 100 dividend inventory. As I sort, it’s down 18% to 432p!
This newest drop means WPP has fallen 48% yr thus far, and is now at a 16-year low. Ouch.
What on earth’s occurring right here?
Grim studying
Promoting group WPP is commonly nonetheless described as a ‘big’. However its market cap is now simply £4.7bn, which hardly appears goliath-like within the present age of $1trn+ digital promoting platforms.
As we speak’s sharp drop was brought on by the corporate’s grim first-half buying and selling replace. It stated “now we have seen a deterioration in efficiency as Q2 has progressed“. This was worse than anticipated and can end in decrease full-year income, earnings and margins.
With weak consumer spending and fewer new contract wins, WPP now expects 2025 income to say no 3%-5%. It had beforehand anticipated that income can be flat or down 2%, at worst.
Underlying working revenue for the primary half is about to fall to £400m-£425m, down from £646m. Administration now assumes that full-year margins will fall 50 to 175 foundation factors, regardless of ongoing cost-cutting efforts. WPP had beforehand guided for the margin to be flattish.
Difficult macro surroundings
It’s no shock that the advert market is difficult proper now. Uncertainty persists round President Trump’s on-off tariffs, whereas China has been weak for a while (WPP has a big operation in China).
There’s each probability the worldwide financial system may fall into recession later this yr, which wouldn’t be best for shoppers and subsequently advert budgets.
If an advert market downturn was my solely concern, I’d see a variety of worth on provide. The inventory is buying and selling at round six occasions forecast earnings whereas providing an 8.8% dividend yield.
However outgoing CEO Mark Learn not too long ago stated one thing in an interview with CNBC that ought to give value-seeking buyers pause for thought: “I believe this AI disruption [is]…unnerving buyers in each business, and it’s completely disrupting our enterprise.”
Adaptation
Whereas WPP did navigate the shift from TV to digital adverts (YouTube, Fb, and so on), that digital disruption occurred over the course of a decade. Businesses had time to rent social media advertising consultants.
Now although, AI instruments are evolving in months, if not weeks. And Google, TikTok and Meta/Fb are muscling their approach into the advert creation house. Businesses are being compelled to adapt in actual time, typically with no roadmap, and with income underneath strain.
Coca-Cola not too long ago used generative AI to make a worldwide marketing campaign video without having a standard movie crew. Admittedly, this reboot of the basic 1995 Christmas business wasn’t notably well-received by viewers, but it surely exhibits the place issues are heading. Generative AI is bettering quickly.
Naturally, the corporate is adapting. It has launched WPP Open, an AI-enabled advertising platform that fifty,000 of its workers at the moment are utilizing. It helps purchasers plan campaigns, create content material, and analyse outcomes.
My transfer
Final month, I warned the inventory may very well be a worth lure — and this newest replace hasn’t modified my view.
I think one of many new CEO’s first strikes may very well be to slash the dividend, turning that tempting 8.8% yield right into a mirage.
I nonetheless see higher alternatives to think about elsewhere within the FTSE 100.
