Shares in Martin Sorrell’s S4 Capital halve as staff costs hit earnings

theguardian.com:

Sir Martin Sorrell’s digital advertising group S4 Capital lost half its stock market value after the costs of rapid hiring forced it to slash its full-year earnings target.

It cut its estimate for full-year core earnings to about £120m from a market expectation of approximately £160m after rapid hiring in the content division hit first-half earnings.

Sorrell, who built WPP into the world’s biggest advertising holding company, launched the digital ad group S4 in 2018, acquiring companies and growing rapidly as it counted Google, Facebook and other tech groups as clients.

But it has hit turbulent waters this year. Four months ago the group spooked the market by delaying financial results after the auditor refused to sign off on the accounts. It later published them in early May, pledging to strengthen its financial controls after it discovered weaknesses and a lack of documentation in its content division.

On Thursday shares in the group, which hit a peak of 878p in September 2021, fell more than 50% in early trading to 116p, recovering slightly by lunchtime to 135p – a 40% drop.

Sorrell had argued that S4 – able to analyse data quickly and place targeted ads online – would grow rapidly because it only operated in the faster-growing digital sector and was not held back like legacy agencies that were designed for an era of traditional TV advertising campaigns.

Analysts at Citi said the new numbers were consistent with an approximate 30% downgrade to consensus earnings.

“While there are good arguments around why this is likely to be temporary – essentially the downgrade is driven by investment in headcount which is essential to deliver growth (which is still on track) – this will likely cause consternation,” they said.

S4 maintained