WPP Stock Plunges 15% After Q4 Earnings: What Went Wrong?

WPP, the world's largest advertising and marketing services group, saw its stock price plummet by 15% following the release of its Q4 earnings. The company reported a 2.3% increase in like-for-like (LFL) revenue, but a 4.2% decline in revenue less pass-through costs. The headline operating profit margin improved by 0.4 percentage points (pt) to 15.0%, reflecting structural cost savings and disciplined cost control. However, the reported operating profit surged by 149.5% primarily due to lower amortisation charges and higher gains on disposals.

The decline in WPP's stock price can be attributed to several factors:

1. Weaker client discretionary spend: Q4 LFL revenue less pass-through costs dropped by 2.3%, driven by weaker client discretionary spend. This indicates a slowdown in client spending on advertising and marketing services, which are core to WPP's business. The company's strategic priority of "accelerate growth through the power of creative transformation" is aimed at driving transformation across clients to stimulate spending.
2. Regional performance: The decline in revenue was also driven by regional performance, with growth in Western Continental Europe (+1.4%) offset by declines in North America (-1.4%), the UK (-5.1%), and the Rest of the World (-4.8%), including a significant decline in China (-21.2%). This regional performance is a setback for WPP's strategic priority of "build world-class, market-leading brands," as it shows that the company is facing challenges in key markets.
3. Operational efficiency: Despite the decline in revenue, WPP managed to increase its headline operating profit margin by 0.4pt to 15.0%. This improvement reflects the company's focus on operational efficiency, which is a key strategic priority. However, the decline in revenue and the impact on the top line may have raised concerns about the sustainability of this improved margin.
4. Investment in AI and data: WPP increased its investment in AI and data through WPP Open, which is now used by 33,000 people across WPP. While this investment aligns with the company's strategic priority of "lead through AI, data and technology," the increased investment may have contributed to concerns about the company's financial performance and the potential impact on earnings.
5. Macroeconomic environment: The overall macroeconomic environment may have also contributed to the decline in WPP's stock price. The company mentioned that it remains cautious given the macro environment, which could be a factor in the stock price decline.



WPP's focus on AI, data, and technology, as well as its integrated offer across creative, production, commerce, and media, has had a significant impact on its financial performance and market position. The company's investment in AI and data has been critical to new business wins, including Amazon, J&J, Kimberly-Clark, and Unilever. The integrated offer has led to an improving new business performance in the second half of 2024, with wins from major clients. The company has achieved structural cost savings of £85m from Burson, GroupM, and VML initiatives, contributing to a stronger headline operating margin and improved cash conversion.

In conclusion, WPP's stock price decline following the Q4 earnings report reflects concerns about the company's top-line performance, regional challenges, and the sustainability of its improved margin. However, the company's focus on AI, data, and technology, as well as its integrated offer, has driven new business wins and improved operational efficiency. As WPP continues to execute its strategic priorities, investors should monitor the company's progress in navigating the macroeconomic environment and addressing regional performance challenges.