WPP Earnings: Missing on All Cylinders Calls for Strategic Review and AI Production Push

Key Morningstar Metrics for WPP

What We Thought of WPP’s Earnings

WPP WPP is trading down 15% after third-quarter earnings showed negative organic growth across nearly every segmentation, ranging from geographies to business lines to client sectors. This was Cindy Rose’s first trading update as the new CEO, as she attempts a massive turnaround.

Why it matters: All of WPP’s key indicators are declining. Client attrition and the absence of a persistent identity graph have heavily affected the company’s performance and investor confidence. WPP is reviewing its strategy, increasingly focusing on ad tech solutions that can expand the addressable market.

• WPP’s average organic growth of negative 4% over the past three quarters is at levels not seen since 2020, and its shares are trading at levels seen in 2008. This is all while competitors Publicis and Omnicom are averaging 5.5% and 3%, respectively. This is a WPP problem, not an industry problem.
• We welcome the strategic review as an opportunity to right-size the roughly 110,000-employee firm, and we are intrigued by the attempt to penetrate small to midsize businesses with a self-service offering. However, there is execution risk here, given WPP’s commitment to spend $400 million on Google Veo ad production tools.

The bottom line: We maintain our no-moat rating and reduce our fair value estimate to GBP 5.05 from GBP 5.50 to align with management’s second guidance cut this year. The lack of a robust PIG has long limited WPP’s value proposition to clients, and it informs our no-moat assessment.

• In a $1 trillion advertising market, SMBs account for roughly 50% of total spending. Agencies historically eschewed this segment, pushing SMBs toward Google and Meta. WPP appears cheap if progress can be made here, but we suspect competitors will create similar self-serve offerings if WPP is successful.
• We recommend holding off on this four-star stock until we see evidence of growth. We strongly prefer Publicis and Omnicom among the agencies due to their possession of PIG data assets.