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WPP boss says huge ads boost on the way
Nick Goodway, Evening Standard19.10.07
Sir Martin Sorrell, chief executive of WPP, the world's second-largest agency, today forecast that 2008 will be even better than 2007 for the advertising industry.
He said the effects of the "maxi quad-rennial", with the Beijing Olympics, US Presidential election and, to a lesser extent, the Euro 2008 football championships, would give a huge boost to an industry that is still growing strongly.
But he added that the more significant issue is the outcome of the US election. He said: "A more important concern should be the impact that any new US administration will have on 2009 - when they have seen the government's books and will be tempted to dispense any politically unpleasant medicine to the electorate early in the eight-year political cycle."
Sorrell said that while the rapidly growing areas of the world's economy, such as China and India, are now less dependent on the US, "it is still true that when the US sneezes the rest of the world catches a cold".
In the shorter term, he said, the effects of the American subprime mortgage crisis and subsequent credit crunch had as yet had "little or no effect on spending levels across the board". He added that any real effects were unlikely to be felt until WPP finalises its internal budget predictions and knows its clients' plans early in 2008.
It was "too early to call", he said. But pointed out that, of WPP's top 50 clients, only three are in financial services.
Sorrell declined to stick his neck out on the exact positive effects of next year's quadrennial events. However, he does not disagree with industry estimates that the Beijing Olympics could boost advertising and marketing spending by $2 billion (£980 million), the US Presidential election by between $1.5 billion and $2 billion and Euro 2008 by less than $1 billion.
He is less concerned than many about the dwindling chances of England qualifying for Euro 2008. He said: "Obviously from a home market view, there's a positive, warm-glow feeling if we succeed - as there has been from the Rugby. But in reality what we lose in one country, we gain in another."
WPP's third-quarter revenues grew by 4.9%, slightly below analysts' estimates of 5.5%. Stripping out the effect of the weak dollar, the figure was 8.1%. The effect of the strong euro and pound against the dollar was less in the third quarter than it had been in the first two.
Strongest revenue growth was again in the Asia-Pacific, Latin American, African and Middle Eastern regions which together rose 13%. Sorrell said the US did "okay" while western Europe, including the UK, "improved slightly but was still the weakest". He added that there were some signs of pressure on traditional advertising spending in the US and western Europe as the growth of internet and interactive advertising continued. Companies are focusing on branding and identity and also public relations.
WPP shares today fell 20p to 674p.
Analysts views on the WPP numbers:
Numis, Paul Richards: "We believe the large agencies offer an attractive risk/reward. Althought WPP shares fell 76% in 2000 to 2003, this was driven by a drop in its share price ratings from 43 times expected earnings in 2000 to 13 times in 2003. WPP has diverse revenue streams both functionally and geographically, a flexible cost base and has been de-rated almost to its 2003 trough multiple. Buy."
UBS said the revenue growth of "almost 5%" would be seen as disappointing following earlier comments from the company that the third quarter would be as good or better than the first half - at 5.4% growth. It said the numbers suggested September had been weaker. However, it advised clients not to get too worried: "Putting it in context, it means WPP missed expectations by around £10 million on total revenues of £1.48 billion. It is worth remembering that WPP had a similar set of disappointing results in the third quarter last year (4.1%) only for the fourth quarter to rebound strongly at 7.2%.
Reader views (1)
Great to see the bullishness as everyone continues upping their forecasts, but the real story in advertising continues to be internet growth.
Here in London it’s felt like being in the middle of a laboratory for over a decade. The UK is the most advanced online ad market in the world and internet adspend should have topped TV by early 2010 to take pole position.
The UK web ad sector got going earlier and stronger. In the first half of this year the web was taking almost 15% of total UK adspend, and by now it’s comfortably north of 16%. North America and Western Europe appear to be following the UK model as advertisers large and small uncover ways to get more value from their marketing spend. But one thing’s for sure: the switch to online marketing shows no sign of slowing down.
The WPP numbers are interesting because they’re bullish about other markets catching up faster. As for what’s in store back in the laboratory? For 2008 look out for new additional drivers that include the unleashing of online video ads on a massive scale with IPTV, yet more waves of product announcements from search engines (they’re comfortably taking over half of all the UK online adspend), and yet another new generation of targeting technology that delivers ads based on the content we’ve previously viewed.
- Danny Meadows-Klue, London
