Advertising industry figure Sir Martin Sorrell expects a V shaped recovery after the pandemic, the head of S4 Capital told analysts at investment bank Jefferies.
Sorrell, the founder of WPP, the world's biggest advertising group, sees the second quarter of 2020 difficult, the third quarter less so but then a recovery in the final three months of the year.
“The up-tick may not be as strong as the down-tick, but he thinks we will be surprised by the resilience at which levels of activity return,” write analysts at Jefferies in a note to clients.
However, Sorrell doesn’t think the traditional mantra of brands spending their way out of the recession will work during this crisis.
Instead, brands will need to shift spend to digital in order to flourish.
Sorrell’s S4 Capital is a self-described new age/new era digital advertising and marketing services company on track to double in size by 2021.
“Digital transformation is accelerating and should continue to,” the analysts report of the call with Sorrell nd his senior executives.
“S4 Capital thinks that the step change in consumer behaviour created by COVID-19 (changes to media consumption habits, work patterns, ecommerce etc) will stick and, as a consequence, S4's clients will need to accelerate focus on digital channels.”
Sorrell told Jefferies that his tech clients had been resilient so far during the coronavirus crisis.
And S4's content business, representing 70% of the company, has remained intact.
FMCG, pharma and retail clients are more mixed, but generally S4 is seeing redeployment of budgets into digital.
“Some clients are willing to incur penalties on switching, given the necessity. Programmatic transformation programs are being elongated due to hiring delays.
“S4 is also seeing a greater use of AI and robotics in the current environment.
“CMOs will no longer delay digital transformation: S4 thinks that CMOs will now look to take back control through digital transformation regardless of cost and disruption, as they see this as essential to survival.
“S4 thinks CMOs will also increasingly realise the importance of data analytics and first party data and will look at verticals more intently.
Sorrell reports his company still has a strong deal pipeline.
“S4 is seeing agencies failing and major lay-offs in the sector, but thinks any valuation difference will be brief and good assets will remain expensive," says Jeferies. "Without a traditional structure, S4 can move quickly to secure good people and client opportunities.”
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