Advertising
WPP
WPP group chief executive Sir Martin Sorrell
The deal saw WPP take a huge stake in the hottest tech startup in New York to help Sorrell's company better compete with Facebook and Google in the online advertising space.
On paper it appeared to be a huge bargain as WPP invested $25 million in cash for a 15% stake in AppNexus, which at the time was valued at $1.2 billion following a series of funding rounds. But the deal also comes with the implicit understanding that WPP will continue to funnel its clients' ad money through AppNexus and a newly created Xaxis for Publishers Unit (which AppNexus acquired from WPP as part of the deal.) It's similar to the deal WPP cut with social media marketing platform Buddy Media, on which WPP made a huge profit when the company was sold to Salesforce. Salesforce went on to offer "volume-based incentives" to WPP's larger ad clients because Buddy was the ad group's preferred partner.
Sorrell said he prefers these kind of deals with adtech businesses (or the "application of technology" companies as he calls them) rather the simply "plonking down a couple of billion dollars in xyz company and the feeling that you might control the application of that technology," because that would be "too risky and dangerous." Instead he believes the injecting some cash and working in a partnership is more flexible and brings together its media and data businesses much closer together.
He also said it now means there is "no other agnostic platform" between Google's Double Click and Facebook's Atlas on the market, which leaves rival advertising holding groups in a quandary.
He added that the partnership caused a "considerable amount of consternation and disruption" in the industry. Sorrell revealed rival Publicis Groupe had been trying to cut a deal with AppNexus in Europe, a discussion that has now ended, and Omnicom "would very much like to establish a relationship with AppNexus," which it now can no longer do.
Sorrell suggested strength of Google's Double Click business and the potential rise of new competitors was also one of the reasons Facebook "accelerated" the launch of its Atlas advertising platform to give it a "countervailing force" to go to battle with in the increasingly competitive adtech market.
WPP beat analysts' estimates on revenue growth for the third quarter, but posted slightly lower than expected net sales, which it blamed on ongoing geopolitical tensions making clients more cautious and a slowdown in the global economy. Like-for-like net sales were up 3% year on year to £2.41 billion ($3.8 billion, below estimations of 3.3%) and like-for-like revenue (which WPP strips out due to the way it books some of its income) grew 7.6% to £2.76 billion.
While missing estimates, WPP was ahead of rivals' recent reported like-for-like revenue growth. Omnicom reported 6,5% growth in its Q3 earnings while Publicis reported 1% revenue growth.
The company's Q3 performance was buoyed by its advertising and media investment management division, which posted growth of 17.1% year on year. The UK was the geographical region marking the strongest revenue growth and the second strongest net sales (10.2% and 3.7% lifts respectively.) In North America, revenues grew 7.8%, while net sales were at 2.3% - slower than in the first half of the year.
WPP's results often serve as a barometer of the health of the wider global economy - if advertisers are spending, it usually means the economy is going through a purple patch too.
In the results statement WPP said clients appear to be more confident than they were in 2008 but they "broadly remain unwilling to take further risks, particularly given multiple geopolitical flash points."
On the earnings call, Sorrell listed out a number of what he terms "swans" - both known and unknown geopolitcal events that pose risks to businesses and the wider macro and micro economy. More recent developments include the Ebola crisis, the rise of ISIS and the effect of recent demonstrations in Hong Kong on China.
"If China sneezes, we all catch cold," Sorrell said.
WPP detailed all the swans in this slide below:
