Sir Martin Sorrell's S4 Capital fails as tech downturn hits ads

A series of deals have seen the value of Sir Martin's firm peak in 2021. ad spending.

S4, whose biggest customers are Facebook and Google, sounded the alarm on Monday about lower-than-expected second-quarter revenue, especially in May and June.

The company blamed the decline on «difficult macroeconomic conditions and customers, especially in the tech sector, remaining cautious and very focused on the short term.»

S4 cut its full-year revenue forecasts to 2-4%, sharply below previous expectations of 6% to 10%.

The company also cut its full-year earnings forecasts as slower revenue growth weighed on margins.

The warning led to a fall shares by more than a fifth, bringing the company's market value to around £620m, well below its peak of £4.8bn in 2021.

p>The challenging outlook underscores S4's heavy reliance on the tech sector as it attempts to capitalize on demand for digital advertising services.

Sir Martin, who founded the company in 2018 after abruptly leaving WPP, has set goals for attracting more «huge» customers — clients with annual revenues of more than £20m.

The 78-year-old has also expressed his enthusiasm for artificial intelligence (AI), calling it the new industrial revolution.

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S4 is already using the technology to create text and images for advertising, improve media planning and purchasing, and increase productivity.

Peel Hunt analysts say: “S4 is making good progress in AI-powered work; however, the bias towards the technology sector, which has historically been a strength, has become a weakness in the short term.”

Dowgate Capital, S4's broker, said the update is «clearly disappointing» but expects S4 to bounce back when the market improves.

Sir Martin brushed off concerns that the company is focusing too much on tech.

He told The Telegraph: «I remain of the opinion that tech will continue to be one of the strongest sectors.

«Let's see what Microsoft, Alphabet and Meta report this week, but I feel they will probably report back a little better than people expect.”

The slowdown in technology has hit S4's content division the most, while growth in data and digital has also slowed. The company added that technology services have proved more resilient.

This is the latest setback for an advertising group that has grown rapidly since its inception.

S4's losses have tripled to £135m in 2022 after a series of acquisitions led to a sharp increase in the payroll of a staff of approximately 9,000 people.

The expansion also led to accounting problems that saw the company delay its results twice after PwC's auditors failed to complete their work on time.

London-listed S4 said it was taking a «disciplined» approach to cost management, including in hiring and discretionary spending. . The company added that these actions will help support performance in the second half.

Net debt stood at £115m at the end of June, although it is expected to rise through acquisitions last year, in line with a target range of £180m to £220m.

S4 said there would be no further merger payments next year, leading to an improvement in its debt position in 2024.

Sir Martin, who revealed earlier this year that he had undergone surgery to remove a tumor, said the group would not consider further acquisitions in the short term as it would focus on «basic things» instead.