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WPP (LSE:WPP) was already having a bad year before today (9 July). But it just got a hell of a lot worse for this FTSE 100 dividend stock. As I type, it’s down 18% to 432p!
This latest drop means WPP has fallen 48% year to date, and is now at a 16-year low. Ouch.
What on earth’s going on here?
Grim reading
Advertising group WPP is often still described as a ‘giant’. But its market cap is now just £4.7bn, which hardly seems goliath-like in the current age of $1trn+ digital advertising platforms.
Today’s sharp drop was caused by the company’s grim first-half trading update. It said “we have seen a deterioration in performance as Q2 has progressed“. This was worse than expected and will result in lower full-year revenue, earnings and margins.
With weak client spending and fewer new contract wins, WPP now expects 2025 revenue to decline 3%-5%. It had previously anticipated that revenue would be flat or down 2%, at worst.
Underlying operating profit for the first half is set to fall to £400m-£425m, down from £646m. Management now assumes that full-year margins will fall 50 to 175 basis points, despite ongoing cost-cutting efforts. WPP had previously guided for the margin to be flattish.
Challenging macro environment
It’s no surprise that the ad market is challenging right now. Uncertainty persists around President Trump’s on-off tariffs, while China has been weak for some time (WPP has a large operation in China).
There’s every chance the global economy could fall into recession later this year, which wouldn’t be ideal for consumers and therefore ad budgets.
If an ad market downturn was my only concern, I might see a lot of value on offer. The stock is trading at around six times forecast earnings while offering an 8.8% dividend yield.
But outgoing CEO Mark Read recently said something in an interview with CNBC that should give value-seeking investors pause for thought: “I think this AI disruption [is]…unnerving investors in every industry, and it’s totally disrupting our business.”
Adaptation
While WPP did navigate the shift from TV to digital ads (YouTube, Facebook, etc), that digital disruption happened over the course of a decade. Agencies had time to hire social media marketing experts.
Now though, AI tools are evolving in months, if not weeks. And Google, TikTok and Meta/Facebook are muscling their way into the ad creation space. Agencies are being forced to adapt in real time, often without a roadmap, and with profits under pressure.
Coca-Cola recently used generative AI to make a global campaign video without needing a traditional film crew. Admittedly, this reboot of the classic 1995 Christmas commercial wasn’t particularly well-received by viewers, but it shows where things are heading. Generative AI is improving rapidly.
Naturally, the company is adapting. It has launched WPP Open, an AI-enabled marketing platform that 50,000 of its staff are now using. It helps clients plan campaigns, create content, and analyse results.
My move
Last month, I warned the stock could be a value trap — and this latest update hasn’t changed my view.
I suspect one of the new CEO’s first moves could be to slash the dividend, turning that tempting 8.8% yield into a mirage.
I still see better opportunities to consider elsewhere in the FTSE 100.
