S4 Capital revenue rises as Martin Sorrell confident in digital ad business despite economic downturn
Advertising giant S4 Capital posted a buoyant gross profit of £171.1m this morning, despite Martin Sorrell’s brainchild to battle macro challenges and accounting lags.
In results released on Monday for the first quarter, reported revenue rose 70% to £206.8m and gross profit/net income rose 64.6% to £171.1m.
S4 Capital said it would maintain its 25% like-for-like gross profit/net income growth target.
Former WPP boss and S4 chairman Sorrell said the pandemic had “accelerated digital transformation”.
“Despite the slowdown in global GDP growth due to the withdrawal of the Covid stimulus, high inflation, rising interest rates, the war in Ukraine and continued zero-Covid lockdowns in China, the age-old digital marketing trend continues to provide strong tailwinds,” he said. said.
A recent Sunday time The investigation criticized the company, revealing that the finance team failed to accurately record sales on the computer system and accused S4-owned MediaMonks of failing to regularly pay social media influencers and other creditors on time.
It comes after shares of S4 fell dramatically last month after the company announced it would delay its audit again. Although Sorrell called it “unacceptable and embarrassing”, the series of delays raised alarm bells over the company’s finances.
The investigation even went so far as to suggest that MediaMonks still uses accounting software that insiders say is inadequate for a company of its size.
In recent weeks, the company announced a merger with 4Mile in the United States and a combination with TheoremOne.
With clients including Starbucks and American Express, TheoremOne has a team of more than 370 experts and generated more than $58 million in revenue in 2021. The deal is also expected to add $8 million to earnings before interest. , taxes, depreciation and amortization of S4 in 2022.
Sorrell said the acquisition would provide customers with a “truly integrated offering.”
Peel Hunt brokers backed Sorrell, giving him a buy recommendation, and said: “While there are downside risks to global marketing spend in the near term, we believe S4 Capital is well positioned to weather the storm. the storm because of its client mix and capabilities. »
Although shares are up 2% this afternoon, S4 stock is still down more than 50% from a year ago.