WPP shares fell 15% on the publication of the company’s results for 2017 today. For a short period this morning trading in the shares were suspended due to the speed of the fall.

WPP billings are down 3.9% year on year at constant currency (excluding foreign exchange effects).

Like-for-like revenues are down 0.3%.

EBITDA is up 1.2% at constant currency.

This is certainly no disaster but WPP looks like a company whose growth drivers are slowing dramatically. Or may have stopped entirely. Or perhap started to slide into reverse.

What is the story?

  • The big tech groups are the new oligopolists and are reducing the importance of the big media communications groups like WPP, Omnicom and Aegis Dentsu. The logic for big consumer companies to to give all their business to creative and buying intermediaries is less powerful than before.

  • WPP is a big, diverse, fragmented organisation created by acquisition during the last century. As global clients sought and were offered global solutions, costs were cut and greater market power increased margins, this all made sense. But in a digital world where new, media players are created as global titans, the logic is less clear.

  • Digital innovation is creating a cohort of far nimbler, tech-enabled players with global reach who are attacking previously high value services offered by WPP in areas such as research, tracking and brand management.

  • Transparency issues are encouraging clients to think in new ways. When global communications can be run by smaller, fast moving teams and bought at the same price as by the global groups, why not use that far smaller, hungry, creative shop or bring services in house?

  • WPP remains a people-based business at heart. Its core thinking is anchored in its people, their creativity, the traditional business systems holding the many companies together, the trading, the squeezing of margins. Technology companies driven by the purity of algorithmic creativity, artificial intelligence, pure data power and blockchain innovation are just beginning to hunt in WPP’s territory and have their eyes on very big prizes. Not many of the attackers will succeed but we know that those who do are likely to succeed on a global scale and – potentially – eat deep into the revenues of traditional media services companies.

Martin Sorrell commented:
“As we build an increasingly unified WPP, we are focusing on a number of areas that will allow us to deploy our deep expertise with greater flexibility, efficiency and speed.

We start this new phase of our journey from a position of market leadership, and with total confidence in the enduring value of what we offer our clients. We will report at every opportunity on our progress.”

Let me translate:
“WPP is a disparate group of media services companies that is unwieldy, created in the last century and has not yet evolved to match the needs of the 21st century media world

We have enormous market power, particularly in media buying, and a network of valuable, global relationships. We will reduce our costs so WPP will continue to create lots of cash.

Our clients are less clear about the value we add to them than ever before. There is a wide range of threats that are coming at our business from many different angles. We are making lots of sensible changes but don’t have a big vision yet. We know we will have to find one quickly.”