Shares in Sorrell’s S4 Capital slump despite revenue growth
Revenue booms for Sir Martin Sorrell’s digital advertising company, S4 Capital, which today said it plans to double in size by 2024.
S4 said like-for-like revenue was up 56 per cent in the third quarter to £178m. Gross profits were up 42 per cent to £144m. Trading was above previous guidance of revenue growth of 40 per cent.
The business, which specializes in digital advertising and services like data, is benefiting from winning “whoppers” – major clients that deliver over $20m in revenue to the business. New client wins this year included the likes of Facebook and HP, for instance.
S4 Capital said it would invest in new hires and technology to take advantage of a booming digital ad market.
Sorrell told Reuters that the company, having grown to 7,000 staff in 33 countries, needed to invest further in talent and software to support big clients, and to move into new areas such as connected televisions.
Despite the confident announcement, shares slumped 10 per cent to 703p.
Speaking with City PM, Sorrell said: “We believe prioritising top-line growth at this point in the Company’s development is key and we’re focussed on the long-term. Our EDBITDA margin target remains 20-22 per cent, which we have achieved and will achieve again.”
Analysts at Peel Hunt said they had reduced their margin expectation, leading to a 10 per cent earnings per share downgrade for the 2021 financial year. However, they said the investment in talent would help the group in the future.
Sorrell set up S4 in 2018 after exiting WPP, the advertising holding company he built up over decades.