Dive Overview:
WPP’s fourth-quarter same-store sales rose 0.3%, although its US performance was hampered by cuts in the technology, healthcare and retail sectors, according to a preliminary trading report. Same-store sales in the key market, the US, fell 4.5% in the period. Full-year same-store sales rose 0.9%, in line with the advertising holding group’s latest outlook, released in October, which lowered its growth expectations for 2023. Looking ahead, WPP is investing heavily in its own artificial intelligence (AI) solutions to keep up with financially better-off rivals such as Publicis. WPP reiterated that it expects same-store sales growth of 0-1% in 2024.
Dive Insights:
Client losses, including parts of the Pfizer business, and a sharp drop in spending from U.S. tech clients poured cold water on WPP’s end-of-year results, which have widened the gap between the GroupM parent and its biggest rivals.
Publicis, which is looking to capitalize on renewed interest in AI, saw organic revenue grow 6.3% in 2023 and beat expectations in the fourth quarter, a key period that includes the holiday shopping season. Publicis now expects organic revenue to grow 4-5% in 2024.
There were some bright spots for WPP, including solid demand from consumer goods clients in the U.S. The network’s top media agency, Group M, posted strong results in the fourth quarter.
But WPP’s boutique and creative agencies, with the exception of Ogilvy, have had a tough year, Chief Executive Mark Read said on an earnings call with analysts. WPP has been trying to streamline some of its agency offerings, including combining its iconic Wunderman Thompson and VMLY&R brands.
Other big ad agency owners are facing similar struggles as clients look to cut costs and focus more on performance and data-driven strategies than traditional brand-building. Interpublic Group last year cut jobs and restructured its digital-only businesses, including Huge and R/GA.
Advertising agencies are looking at 2024 as a year of recovery as economic pressures ease and events such as the Summer Olympics, the UEFA Euro 2024 football championship and a busy election cycle drive increased ad spending. Generative AI is also a front-runner, with the rise of ChatGPT likely to reshape and possibly disrupt many aspects of business.
WPP said in January it would spend £250 million ($318 million) annually to drive its AI transformation. Executives argue that AI could help WPP perform better through licensing, supporting client projects and improving its own operations. Last year, WPP struck a deal with chipmaker Nvidia to build a content engine powered by generative AI, raising questions about whether creative jobs will be affected.
“We will see AI-enabled work deliver better outcomes as it makes people more productive by augmenting roles rather than replacing them. [return on investment] “This is a huge benefit to our customers,” Reed said on a conference call with analysts.
Another potential problem for agencies is other services surpassing their own capabilities in generative AI. WPP announced earnings on a preview of OpenAI’s Sora tool, which can quickly create complex videos based on technical prompts, and investors asked Read about the potential impact for WPP.
“I don’t think this changes our strategy. I think it strengthens what we’re doing,” Reed said. “What clients need is copyrighted works, [is] “No company has been able to accurately represent their brand and reality yet, and Sora hasn’t reached that stage yet.”
