Monday, December 5, 2022

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    S4 results steady the ship after a rocky first half trading

    Cost controls bring the digital ad group’s margins up, while revenues rise on the back of lower-funnel marketing strategies.

    S4 Capital’s financial performance is back on track after a strong three months of trading, the firm’s third quarter results show.

    In September, the Media.Monks parent company recorded a £75m loss and job cuts across the board as it reeled from an accounting fiasco in the spring.

    But its most recent set of results shows the company is in recovery mode. Its operating EBITDA margin (the margin on earnings before interest, tax, deprecation and amortization) has ’improved significantly’ since August and, by the end of the year, should deliver a before-tax revenue of £120m ($141m).

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    Executive chairman and founder Sir Martin Sorrell said: “Despite the current macro political and economic gloom and slowing tech growth, our top-line momentum has been more than maintained in the third quarter and remains relatively strong into the fourth quarter. This is an enormous credit to our people and their ability to operationalize our purely digital, data-driven, faster, better, more efficient and unitary model.“

    What else did the results reveal?

    According to S4’s trading update, released to the market this morning, the hiring freeze it announced earlier this year has brought the firm’s wage bill back under control. The company shed 1% of its staff (about 90 employees) over the last three months.

    Overall, S4 brought in £484.2m in billings and £300.1m in revenue; net revenue was up by 29%. The bulk of that came from the Americas region, its largest market, and from its digital advertising ’content’ practice. In contrast, growth in Asia Pacific has been slow, credited to China’s Covid restrictions.

    S4’s technology services arm, established just last year, has experienced very fast growth: since last November it has increased revenues by 3290%, to just under £34m.

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    Sorrell said that the company has not thus far been affected by gloomy global economic conditions – in part because clients have been moving budgets ’down the funnel’ away from mass audience advertising and towards performance marketing.

    “Despite the current economic uncertainties, the leading technology platforms are still forecast by the sell-side to grow by up to 10% next year and digital transformation spending is forecast to continue to grow in the range of 20%. Given the reduction in global GDP growth rate forecasts for 2022 and 2023 and the likelihood of a recession in some parts of the world, clients will be moving ’down the funnel’, as we say, prioritizing performance and activation, measurement of marketing ROI and media mix modeling, which plays to our strengths.

    “We believe this changing market environment will continue to offer significant growth opportunities given our client profile, relative size and disruptive model.“

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