S4 Capital revenue surges as Martin Sorrell confident about digital ad sector despite economic slowdown

Ad giant S4 Capital posted buoyant gross profit of £171.1m this morning, despite Martin Sorrell’s brainchild battling macroeconomic challenges and accounting delay woes.

In results published on Monday for the first quarter, reported revenue was up 70 per cent to £206.8m and gross profit/net revenue up 64.6 per cent to £171.1m.

S4 Capital said it would maintain its like-for-like gross profit/net revenue growth guidance of 25 per cent.

Former WPP boss and S4 chairman Sorrell said the pandemic had “accelerated digital transformation.”

“Despite the softening of global GDP growth because of the withdrawal of the Covid stimulus, significant inflation, increasing interest rates, the war in Ukraine and China’s continued zero-Covid lockdowns, the secular trend to digital marketing continues to provide strong tailwinds,” he said.

A recent Sunday Times investigation slammed the company, revealing the finance team failed to accurately record sales on the computer system, and accused the S4-owned MediaMonks of regularly failing to pay social media influencers and other creditors on time.

It comes after S4’s shares plunged dramatically last month after the company announced it would be delaying its audit once again.  Though Sorrell called this “unacceptable and embarrassing”, the series of delays raised alarm bells about the company’s financials.

The investigation even went as far as to suggest that MediaMonks still uses accounting software that insiders argue is inadequate for a company of its size.

In recent weeks, the company has announced a merger with 4Mile in the US and a combination with TheoremOne.

With clients including Starbucks and American Express, TheoremOne has a team of over 370 experts and generated revenues of over $58m in 2021. The deal is also expected to add $8m to S4’s earnings before interest, tax, depreciation and amortisation in 2022.

Sorrell said the acquisition would provide clients with a “genuinely integrated offer”.

Brokers at Peel Hunt backed Sorrell, giving it a Buy reccomendation, and said: “While there are risks of a reduction of global marketing spend in the near term, we believe S4 Capital is well placed to weather the storm due to its client mix and capabilities.”

Despite shares climbing two per cent this afternoon, the S4 stock is still down more than 50 per cent over the last year.