S4 stutters as clients pull back in May and June

S4 Capital has substantially downgraded its predicted 2023 organic revenue growth after Q2 net revenue came in below budget.

The MediaMonks owner, which is led by Sir Martin Sorrell, had been expecting to achieve 6-10% growth but has now altered this target to 2-4%.

It also brought its 2023 target operational EBITDA margin down from 15-16% to 14.5-15.5%.

The company said in today’s trading update: “Net revenue in the second quarter was below budget with May and June in particular, reflecting the challenging macroeconomic conditions and clients, especially those in the technology sector, remaining cautious and very focused on the short term.”

Investors reacted by sending its share price down as much as 25% in early trading this morning before a partial recovery to just over 110p closer to 10am. Friday’s closing price was 137.90p.

S4 highlighted the priority it is currently putting on “cost management, including headcount and discretionary costs”, but was not ready to comment on whether it was shedding jobs. Its headcount has fallen from 8,700 staff on 28 June to 8,600 today.

Of its three disciplines, it singled out content as the weakest performer, with revenue coming in below budget in Q2. Data and digital has seen growth slow compared to 2022 but “is trading satisfactorily”, but technology services “continue to perform well”.

The trading statement concluded with an optimistic note about the company’s push into artificial intelligence.

“We remain confident our talent, business model, strategy and scaled client relationships position us well for industry-leading growth in the medium term and the initial client traction we are seeing with our AI initiatives further reinforces our confidence,” it said.