S4 Capital shares plunged by a fifth after the advertising firm reported that customers were tightening marketing budgets in favour of AI spending.
The company, headed by WPP's founder Sir Martin Sorrell, said its financial performance was being dampened by challenging market conditions. Revenues for the third quarter, covering July to September, totalled £173.5 million – a tenth lower than the same period a year ago.
AI infrastructure takes priority
S4 said tech clients were continuing to prioritise and increase spending on AI infrastructure over marketing budgets, which was resulting in weaker sales. This was particularly the case for so-called “hyperscalers” who are investing heavily in data centres to power AI processes.
Sir Martin said clients had remained “cautious”, reflecting “heightened macroeconomic uncertainty, including the continuing conflicts in Ukraine and the Middle East”. But he set this against bigger AI spending ambitions, adding: “The four biggest hyperscalers are projected to spend over five trillion US dollars (£3.76 trillion) on AI-related capital expenditure between 2025 and 2030.”
Outlook and debt position
“While the macroeconomic environment remains uncertain, we see growing opportunities as clients become more selective about growth geographically and increasingly focused on implementing technologies such as AI, blockchain and quantum computing to drive efficiency,” Sir Martin said.
S4 Capital said it expected revenues for the year to be “marginally below” previous guidance, and down on the previous year by “high single digits”. Nevertheless, it ended the quarter with net debts of £76 million – around half the £151 million reported at the same time last year. Shares in the company were down around 20% on Wednesday morning.
