WPP, the largest advertising group in the world by revenue, crushed sales expectations in the first quarter of 2021. It is the first time it has returned to growth since the beginning of the COVID-19 pandemic, signaling an upturn for the advertising industry amid the wider economic recovery.
Shares in WPP WPP, +4.11% WPP, +4.27% climbed 3.5% higher in London trading on Wednesday.
WPP is viewed as a bellwether for the health of the global economy, because marketing budgets are typically the first on the chopping block in tough times and the first to benefit when business picks up. And 2020 was brutal for WPP, as corporate spending on advertising shriveled up amid the COVID-19 pandemic: The group logged a pretax loss of £2.8 billion ($3.9 billion) last year as revenue fell near 10%.
More broadly, WPP is in the midst of a tough, multiyear transformation to advertising in the digital age, including building new e-commerce platforms for clients. The shares remain below their price from 2018, when the group’s controversial founder, Martin Sorrell, made a high-profile departure following an investigation into alleged misuse of company funds, which he denies.
Also read: Advertising Giant WPP Is Expanding to Digital. How the Pivot Could Help Its Stock.
WPP reported £2.3 billion in revenue minus pass-through costs — the sales measure closely watched by analysts — in the first three months of 2021, representing 3.1% growth from the same period in 2020 on a like-for-like basis. The sales figures firmly exceeded analyst expectations of a 1.5% decline. Growth in its top five markets was driven by China, where sales rose more than 18%.
The ad giant said that it had won $1.3 billion in net new business in the quarter, and confirmed its outlook for the full year of revenue growth in the mid-single digits.
“WPP has had a strong start to the year with a return to growth in all business lines and most major markets,” said WPP Chief Executive Mark Read. “The rollout of vaccines is improving visibility in many markets, although there is inevitably uncertainty over the pace of recovery.”
Plus: Advertising Boss Martin Sorrell Sees a ‘Full-Throated’ Recovery in 2021. Here’s Why.
WPP shares climbed in London, as analysts cheered the company’s strong sales figures. “Relief oozes from these results as the bounce back has clearly begun in the ad world with mothballed projects dusted down and the squeeze on budgets eased,” said Susannah Streeter, an analyst at broker Hargreaves Lansdown.
Analysts at Barclays, who had been bearish on WPP’s performance in the quarter — expecting a 3% decline in revenue — maintain a buy rating on the stock, with a target price of 1,140 pence. Trading at 985 pence on Wednesday, the Barclays view is that WPP shares have legs to climb near 16% higher. For investors, WPP stock may be another way to play the economic recovery.
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