What's going on?
WPP, the world’s largest advertising agency, marketed its second-quarter results on Tuesday – and its shares tumbled 7%.
What does this mean?
WPP’s results showed something of a poor performance in North America, its biggest market. The company’s North American sales growth (excluding the effects of things like currency fluctuations) fell by 3% thanks to fierce competition and some of its customers pumping the brakes on their spending – though worldwide sales growth was up 1%. WPP also said that its profit margin this year will be lower than last year as it plans to spend more on resuscitating growth. (Advertiser, market thyself.)
Why should I care?
For markets: No sacred cows on the WPP farm.
Barely a day after his inauguration, WPP’s new CEO is up a creek – and time will tell whether he has a paddle. WPP is mom and dad to a number of subsidiaries and as the CEO looks to overhaul the entire company, he’s said he’s not afraid to chop off underperforming limbs – especially in the ultra-competitive US. He’s promised a different leadership style to his predecessor (the company’s founder, Sir Martin Sorrell) who stepped down in April amidst scandal and allegations of misconduct.
The bigger picture: Advertising ain’t what it used to be.
Surprise, surprise: the internet (and social media, in particular) has hugely altered the advertising landscape. Digital advertising is growing fast and most of the cash and control it’s generating is going right into Google and Facebook’s hot hands (tweet this). That means traditional ad agencies like WPP are having to adapt to the new normal to get their piece of the pie. But with this power comes responsibility: there’s more pressure on social media companies to make sure what’s on their platforms is legit, and to control the proliferation of fake news (enter Facebook’s political ad regulations). Senior executives from Facebook, Twitter, and Google’s parent company, Alphabet, will be testifying in US Congress on Wednesday about how they police their content.