The economic fallout from the coronavirus has dragged at Martin Sorrell’s S4 Capital but still the digital advertising company has grown revenue.
The pure-play digital advertising group founded in 2018 believes April could be the trough, the lowest point, of the COVID-19 downturn. Even then the company managed some growth.
In a trading update, the company says like-for-like gross profit grew more than 3% in April. The company is confident of delivering double digit like-for-like revenue and gross profit growth for 2020.
“COVID had an effect on our revenues but we’re still growing and it looks like we bottomed out in April and May was better,” chief growth officer Scott Spirit told AdNews.
“What we've seen of June -- although we don't have the numbers -- looks better as well and we've got good traction going into the rest of the year."
Why is S4 growing when the rest of the advertising industry is seeing revenue shrink?
“We were 100% focused on digital,” says Spirit.
“When you look at the big holding companies, they don't really break down how their revenue works but they clearly have big legacy traditional businesses which are the parts that are suffering.
“Even if their digital parts are growing, it doesn't make up for the decline elsewhere.
“When you look at any of the industry projections for ad spend, it’s pretty volatile, a lot of choppiness.
“But most now agree that the hardest impact is on some of the traditional media.
“That's not an area that we operate in, so we're not exposed. And when you look at the projections for digital, many still have growth for this year.”
Many say that COVID-19 has accelerated the move to digital advertising because that’s where consumers are going in lockdown, to websites, streaming media and other online entertainment.
Microsoft CEO Satya Nadella, delivering quarterly earnings in April, said: “We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security—we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything.”
Microsoft is an S4 client.
“We have a really heavy tech client base,” says Spirit.
“More than half of our revenue comes from technology companies. Our biggest client is Google.
“Our Netflix and Spotify clients are getting more and more subscriptions and usage is increasing dramatically.
“Our Amazon client and other eCommerce clients have seen huge increases in demand.
“There's a lot of drive into digital consumption. For consumers, if you’re locked up, that's the only route to the outside world, whether that's for commerce or communication or entertainment or work or study or whatever.
“Once the lockdowns ease, people are quite happy to go outside and hang out and see friends and have a physical life again.
“But I think a lot of those habits have changed and people have realised the utility of doing things digitally.
“I don't think everything goes back to the way it was.Some of these changes are permanent and we are seeing what we call a giant leap forward for many of these sectors.
“From a marketing perspective, if your consumers are online and they're consuming your products digitally, then you should be marketing them digitally as well.
“All of that pushes budgets from traditional to digital."
These are all trends that were existing in the industry but have now accelerated.
“They have big implications for the wider industry, for media owners, for the big agency groups," says Spirit.
“I think most people are still grappling with that.
“I think that the industry will look quite different at the end of the year."
S4 is also poised to grow via acqusitions, hunting bigger fish.
The company, with 13 acquisitions, or mergers as it calls them, has announced a capital raising of GBP100 million (AUD 180 million) to give it “additional firepower”.
The cash will enable the company to “explore larger deals”, as well as respond quickly to opportunities as they arise.
Last month S4 acquired Lens10, a leading Australian digital strategy and analytics consultancy. The business is being merged with MightyHive, Sorrell's vehicle of choice for data analytics.
The content practice was established in 2019 with the Melbourne-based BizTech (now MediaMonks) acquisition.
S4 is looking for companies with a strong record of organic growth, good earnings margins and little or no risk of technoloogy destroying the business.
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