The Advertising Crunch

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Image source: 360b / Shutterstock.com

What's going on?

WPP, the world’s largest advertising company, slashed its forecasted revenues – for the second time this year. And the company’s shares dropped 10%!

What does this mean?

WPP singled out the advertising budgets for consumer goods (like soap and chocolates) as being under pressure – and this revenue stream makes up about a third of WPP’s revenues. Consumer goods companies are facing competition from online retailers like Amazon and are trying to find ways to cut costs. Advertising costs appear to be a vulnerable area.

Why should I care?

The bigger picture: The decline in advertising budgets by consumer goods companies could hurt the rest of the advertising industry.

To take one example: consumer goods giant Unilever, one of WPP’s biggest customers, said earlier this year that it would cut ad output by 30% and halve the number of creative agencies it works with. This appears to be a trend: eight of the ten consumer goods companies who detailed their marketing approach in the first half of the year reported a decline in marketing budgets as a proportion of sales.


For the markets: Shares in advertising companies are looking vulnerable.

WPP shares had their biggest drop in 17 years! When WPP is assessed against its competitors, it is the most vulnerable to reduced advertising spend in consumer goods and food, followed by rival advertising companies Publicis (whose shares fell 3%) and Omnicom (down 7%). In other words, advertising companies are feeling the heat, and investors in these companies are the ones feeling the pain.

Originally posted as part of the Finimize daily email.

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