WPP shares have lost half their value in just over 2 years as key clients pulled business from the company
LONDON • The year was 1989 and Mark Read, armed with degrees from top-tier academic institutions and an appetite for business, wrote an application to Martin Sorrell, the founder of a little-known advertising outfit snapping at the heels of the titans on Madison Avenue.
The letter landed Read his first job at WPP plc and in the next years, the soft-spoken Cambridge graduate witnessed the hard-charging Sorrell grow the company into the world’s biggest advertising group, whose work ranges from making TV commercials for Uber Technologies Inc, to buying billboard space for Pantene shampoo.
Sorrell used serial acquisitions to form a complex web of agencies, counting 130,000 employees across 112 countries. Then a year ago, Sorrell’s career at the company he built crumbled.
Amid allegations of misconduct (which Sorrell denies), WPP’s powerful boss departed and Read ascended to the top job.
He inherited a group that was losing work to its global ad agency rivals and a new generation of competitors.
WPP shares have lost half their value in just over two years as key clients pulled business from a company they see as too complex to navigate and short on marketing skills for the digital age.
Management consultancies such as Accenture plc and McKinsey & Co are boosting their marketing expertise as they help clients develop websites, e-commerce and smartphone apps to serve customers who are buying more through the Internet.
Facebook Inc, Alphabet Inc’s Google LLC and now Amazon.com Inc are dominating the digital ad business, which is sucking dollars away from the conventional advertising that was long WPP’s expertise.
“It’s a very big hole to dig out of” for Read, said Michael Farmer, chairman and CEO of Farmer & Co, a strategy consultant who has written a book about the crisis facing the old ad agencies.
“The jury is out on whether he or anybody could do anything about it.” Once the challenger, WPP was already beginning to lose business with key customers such as Volkswagen AG and AT&T Inc during Sorrell’s final years in charge.
In October, one of WPP’s biggest and oldest clients, Ford Motor Co, cancelled its lead creative brief, wiping out as much as 1.5% of WPP’s revenue, according to Kepler Cheuvreux analyst Conor O’Shea.
Read has had a rocky start since he was named permanent CEO in September.
WPP’s struggles in North America, its biggest market, forced a revenue outlook downgrade in October and Read froze hiring the following month in an urgent effort to rein in costs.
The company wants to sell a majority stake in its Kantar data and market research unit, which could be valued at about £3 billion (RM16.17 billion).
WPP’s shares are down 26% since the departure of Sorrell, who went on to found an advertising company called S4 Capital plc.
Read “has the right idea”, said David Herro, deputy chairman of Harris Associates, which is WPP’s second-largest shareholder. “There was a mess he had to clear up.”
There have been some green shoots for Read, whose boldest moves to date have been to combine digital outfit VML with creative network Y&R and merging famed creative agency J Walter Thompson with the more digital-focused Wunderman, which Read led successfully before becoming WPP CEO.
Wunderman Thompson won the lead creative brief for battery brand Duracell in March and VMLY&R scored US$25 million (RM103 million) of new business in its first 90 days, but WPP’s stock has hardly budged since he revealed his vision for the company in December.
At an advertising event in London last month, Read made it clear not to expect a quick comeback.
“This is a turnaround and it’s not going to happen overnight,’’ said Read. “2019 is the foundational year.’’
WPP executives are backing Read’s self-described “radical evolution” for now, according to interviews with senior managers. They highlighted WPP’s annual strategy confab in New York as an example of how he’s improving the culture.
Sorrell would often grade the financial performance of WPP agencies with a traffic-light system, which left those exposed feeling humiliated.
A fixture at the annual Davos economic gathering, he would also bring in celebrity speakers such as former British prime ministers Tony Blair and David Cameron to chew over issues of global business and geopolitics.
Read used last October’s gathering to win over WPP’s top leadership to his ideas, according to several senior managers who attended.
The atmosphere was positive and his approach collaborative, with more open discussion, said the people, who asked not to be named discussing internal matters.
Where Sorrell used to micromanage, Read has formed a 20-strong executive committee to help run the group. People around him said he is more willing to delegate, take on feedback and lead by consensus.
“In a calm way, he’s piecing things together,’’ said Simon Francis, CEO of Flock Associates, which advises companies on their marketing operations and strategy. “There’s been no Big Bang moment.’’
Sorrell hasn’t gone quietly. Still WPP’s 10th-largest shareholder according to Bloomberg data, the 74-year-old businessman has built marketing group S4 Capital to compete with WPP and hasn’t held back from criticising his successor’s approach.
WPP executives said Sorrell is no more than a minor distraction for Read, who is focused on delivering his plan.
It’s still early days for Read, but if by next year there is no sign that the approach is working, the pressure on him will grow, said Bloomberg Intelligence analyst Matthew Bloxham.
With WPP’s revenue and profits ebbing away, analysts are speculating about a possible takeover or break-up and chairman Roberto Quarta could soon be under pressure to justify his choice of a company insider to overhaul WPP.
“It’s a stock that’s really in the balance,” Bloxham said. “If there isn’t a material pick-up in momentum and market share coming through by then, the board’s biggest concern will be they’ve chosen the wrong path.” — Bloomberg