With ad spending back, here’s why WPP is an economic recovery play

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WPP, the world’s largest ad group by revenue, crushed sales expectations in the first quarter of 2021. It is the first time it has grown again since the start of the COVID-19 pandemic, signaling a rebound for the industry. advertising amid the broader economic recovery. Shares in WPP WPP, -0.99% WPP, + 3.97% were up 3.5% more in London trading on Wednesday.

WPP is considered a benchmark for the health of the global economy, because marketing budgets are often the first on the cutting board in tough times and the first to benefit when business recovers. And 2020 was brutal for WPP, as corporate ad spending fell amid the COVID-19 pandemic – the group posted a pre-tax loss of £ 2.8 billion ($ 3.9 billion) last year, already that revenue fell about 10%. More broadly, WPP is in the midst of a tough, multi-year transformation toward advertising in the digital age, which includes building new e-commerce platforms for customers. The shares remain below their 2018 price, when the group’s controversial founder Martin Sorrell made a high-profile exit following an investigation into an alleged misuse of company funds, which he denies. Also read: Ad giant WPP is expanding to digital. How the pivot could help your stock. WPP reported £ 2.3 billion in revenue minus transfer costs, the sales measure that analysts closely follow, in the first three months of 2021, representing 3.1% growth over the same period in 2020 in comparable terms. Sales figures firmly beat analysts’ expectations for a 1.5% drop. Growth in its top five markets was driven by China, where sales increased more than 18%. The advertising giant said it had earned $ 1.3 billion in net new business in the quarter and confirmed its outlook for the full year of revenue growth in the middle digits. “WPP is off to a good start to the year with a return to growth across all business lines and most major markets,” said Mark Read, CEO of WPP. “The vaccine launch is improving visibility in many markets, although there will inevitably be uncertainty about the pace of recovery.” Plus: advertising chief Martin Sorrell sees a ‘full lung’ recovery in 2021. Here’s why. WPP shares rose in London as analysts applauded the company’s strong sales figures. “Relief oozes from these results, as the rebound has clearly started in the advertising world with suspended projects dusted off and the pressure on budgets eased,” said Susannah Streeter, analyst at Hargreaves Lansdown broker. 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 price target of 1,140 pence. Trading at 985 pence on Wednesday, Barclays’ view is that WPP shares have the legs to rise about 16% higher. For investors, WPP stocks may be another way to play the economic recovery.