WPP, the world's largest advertising company, has revised its sales forecast downward, citing the underperformance of U.S. technology companies. The news caused a 7% drop in WPP shares in London.
Revised Growth Projection
WPP now expects a growth rate of between 1.5% and 3% for the year, on a comparable basis. This is a significant reduction from its previous guidance of between 3% and 5%. In the second quarter, WPP's comparable sales growth was only 1.3%, with a total of 2% for the first half of the year.
U.S. Technology Clients
CEO Mark Read explained that the primary cause for the shortfall in results was the United States technology sector and its related projects. While not all technology clients experienced a decline, there was a general trend of cost control and margin focus. Many companies within the tech industry are currently at different stages of the innovation cycle, which has contributed to the slowdown in their growth rates.
Impact of Artificial Intelligence
Read also mentioned that technology companies are still grappling with how to effectively incorporate generative artificial intelligence into their products and services. The lack of a clear business model associated with AI is hindering progress in this area. However, Read expressed cautious optimism that companies will eventually find a solution.
Approximately 18% of WPP's business comes from technology companies, further highlighting the impact of this sector on the company's overall performance.
In light of these challenges, WPP remains cautious about the potential for a turnaround this year, emphasizing the need for continued prudence in forecasting.