Investors who have been bearish about the established agency sector have been proved “wrong” by the strength of the Q3 results at WPP and rivals such as Interpublic and Publicis Groupe.
That’s according to Mark Read, chief executive of WPP, who spoke to Campaign after the company reported a 15.7% rise in like-for-like revenues in Q3 versus 2020.
Importantly, there was a 6.9% increase in 2021 compared with 2019 – a continued improvement on the trends seen in Q2 and Q1 versus two years ago.
All of WPP’s key business lines rose “above 2019 levels”, including public relations, for which there was strong demand, as purpose and sustainability have risen up the agenda, according to Read, citing the COP26 conference taking place this week as an example.
Both JPMorgan and Citigroup said WPP’s shares merited a “re-rating”. The stock price jumped 8% and reached about £10.50 – its highest level since before the pandemic, although still far from its 2017 peak of £19 when it was the world’s most valuable agency group.
Publicis Groupe recently became the most valuable group, after overtaking Omnicom several months ago and remaining ahead for a sustained period, but WPP closed the gap on the strength of its Q3 results.
“We were actually back at number one and ahead of Publicis,” Read pointed out, although the two groups have been neck and neck in recent days in terms of their stock market valuations at about £12.5bn or $17bn each.
He also talked about the impact of Apple’s “Allow App To Request To Track” changes, why clients are “concerned” about the recent Facebook whistle-blower revelations and the SEC’s recent $19m fine against WPP.
This is an edited version of the transcript:
Campaign: You’ve described it as a “very strong” Q3. Has anything significant changed since the first half of the year?
Mark Read: We were down 8.4% [across all of] last year. When we did our budgets for the year at the start of 2021, we expected to recover half of that. But consistently throughout the year, the business has performed more strongly than we expected.
If you look at it by half [in 2021], it may be slightly more indicative of the longer-term trends that we’d hope [for]. We were up 0.5% versus 2019 in the first half. If you look at our guidance, that implies 4% to 5% in the second half. We’re going beyond a cyclical recovery from 2020.
The bear case on WPP was all we’d see is a cyclical recovery in 2021 and 2022 and we’d see if the business could grow sustainably in 2023. Our Q3 results do indicate the longer-term opportunity for the company and for the industry overall.
You mention the role of your data arm, Choreograph, in linking data and technology to creative. It’s also striking that Publicis and Interpublic have done well in recent quarters and that’s been partly down to their data businesses, Epsilon and Acxiom respectively. But they were acquired, whereas Choreograph was built organically.
We have a different strategy [from Publicis and Interpublic]. We would say Choreograph has been integral to a lot of our new business efforts throughout the year. It was very important in the context of Walgreens Boots Alliance [a retention in October 2020]. It was also a key part of our offer to Unilever and Bayer and to our other media and, indeed, creative pitches [in 2021].
The notion that our job is to help our clients maximise the value of their own data – not to sell them a particular product [as a rival agency group might do] but to work with them on the best solution agnostically – is resonating with clients.
On the subject of data, what have you observed about the impact of Apple’s “Allow App To Request To Track” changes (which has meant consumers can choose whether to opt into advertising tracking)? How much has it changed clients’ attitudes to managing their own data and how much of that is an opportunity for WPP?
I think that [the Apple tracking change] is one of a number of contributing factors to changing client attitudes towards data. They realise that it’s increasingly important to their business and they realise a strategy of relying on the platforms for data is no longer sufficient.
The short-term changes are probably not as important to our clients. The reason that you saw pullback on certain media platforms was because quite a lot of that data is used [by advertisers] to drive things like app downloads [that’s not a business that we’re in].
It does say to clients that, longer term, they need a coherent data strategy and I think that few clients are in a place [at the present time] where they’re entirely clear on what that should be.
What can you tell us about the performance of WPP’s creative agencies? Back at the WPP investor day in December 2020, you were quite bearish about the trends for creative agencies as they were previously constituted.
I would say I would be bearish about analogue-focused creative agencies but that’s not what VMLY&R, Wunderman Thompson or, indeed, AKQA Group or Ogilvy are. If you look at the quarter, Group M was up 19% [on 2020] and very strong. But those creative agencies were up close to 10% in the quarter and very close to recovering back to 2019 levels in Q3.
We have seen strong creative growth in our creative agencies, particularly at VMLY&R that grew double-digit in Q3. We see continued progress at Wunderman Thompson and Ogilvy that have improved quarter by quarter from Q2 to Q3 and indeed at AKQA Group that has recovered beyond 2019 levels.
The investor presentation featured several recent ad campaigns. But if you link creative and technology with Choreograph, is there a sense that big-brand advertising somehow gets relegated in the new WPP model?
No, the role of ideas is to make brands famous and that has to be the case – whether that’s expressed in a 30-second commercial, an exhibition like Blue Paradox [for SC Johnson and Conservation International] at Westfield that got millions of views on TikTok, or the launch of a fantastic product like Sky Glass [with support from AKQA and MediaCom].
There has to be an idea behind every piece of marketing. The notion that you can reduce marketing to a series of optimised banner ads does it a disservice.
There has been a lot of attention on Facebook and the role of its platforms, whether they are toxic and whether it puts profit before purpose. What has been the reaction of your clients and are you doing anything as the biggest media buyer of the agency groups?
Clients are very concerned by what they see. There’s no doubt it’s been a couple of challenging weeks for Facebook and there’s no doubt there is going to be a couple of challenging weeks to come. At the moment, there is a sense there are more questions than there are answers. The imperative is for Facebook to demonstrate to our clients and to government that they can ensure that the platform is safe.
I don’t know if there’s anything particularly new in the revelations. But the volume of them clearly demonstrates the number of areas this touches.
It’s also apparent that many of their employees are concerned about what’s going on and I think that says they are trying to address the issues that have been raised. I do believe the leadership of Facebook genuinely want to address these issues but they have got work to do.
There was a recent SEC ruling that resulted in a $19m fine for WPP because of an “aggressive business growth strategy” in some high-risk markets in the recent past. Has that or anything else in the recent past made you rethink your strategy in some of these markets? Separately, the WPP annual report in April showed calls to the company’s anonymous whistleblower line have risen in the last two years since you started disclosing it. How do you prevent an aggressive business growth strategy getting out of control?
Since I’ve taken over this role [in 2018], I’ve been clear about the type of behaviour that we want from our people at WPP. We have promoted various ways of allowing our people to raise issues much more broadly within the company. As a result, calls to the whistleblower line have increased. While each individual call is regrettable, the fact that people are willing to call is a positive thing and allows us to raise the issues that they raise with us.
I would also say that we’ve been clear over the last three years that we need to simplify and integrate WPP’s business much more effectively – to move to common platforms, to get greater control over the organisation.
The events that the SEC ruling refer to relate largely to the period 2013 to 2018 and, I think, talk to the need to integrate companies more tightly and the need to put in proper systems and controls in place, and those are all areas that we have been working on very hard over the last three years.
That’s recognised by the SEC in its filing – that it’s confident in the steps we’ve taken as a company to ensure this pattern of behaviour is not repeated in the future.
It is absolutely regrettable but [the $19m fine] talks to the need to integrate, simplify and control the business more effectively.
How confident can we be about 2022? Are there things like inflation that concern you or give you confidence?
We’re not at the point where we can give formal guidance for 2022. My view remains that a strong 2021 implies we have good momentum in 2022, which is better for the business and better for the industry. Coming out of Covid, the demand from clients of what we offer in terms of innovation, branding, ecommerce, marketing technology and the work we do with partners like Google, Facebook, Adobe, Microsoft and Salesforce is in great demand. And that does speak to continued good growth into 2022.
WPP is the largest agency group by headcount by some margin with over 100,000 staff yet some peers [such as Publicis Groupe and Omnicom] have similar or higher stock market valuations with fewer employees. How much does that matter as a measure of your ability to grow the business? If you employ the most people, surely you should be the biggest by value?
It depends where you employ them – if you employ someone in South Africa versus Manhattan then your revenue per head is different and so effectively is their contribution to market cap. We have much larger businesses than our peers in China, India and Latin America, and while they are lower in terms of revenue per head today, these are industry growth engines for the future.
What’s important is relative share price performance – not the absolute market cap of the company. Our focus is on driving up total return to our shareholders, not expanding the absolute equity value of WPP.
Following these results, several big Wall Street banks have said WPP's shares merit a "re-rating", the stock price jumped and your market cap means you're now worth about the same as Publicis and may even overtake them. Are these Q3 results a turning point in WPP's recovery? Maybe you feel you've proved the bear case on WPP was wrong?
I believe our results, and let’s be frank, those of most of our peers, have proven the bear case wrong. Market cap is one way of looking at performance. I would prefer to look at shareholder returns, but on this you are right that after all the results were in we were actually back at number one and ahead of Publicis.
Share prices don’t move in a linear way and there will always be periods where investor perception lags, or gets ahead of, reality. I just think we are beginning to see some catch-up with the reality of our very strong performance.