S4 Capital, the pure play digital advertising business, has issued a profit warning as the growth in costs outpaced revenue.
The company, known for its fast growth since founded in 2018 after Sir Martin Sorrell left global advertising group WPP, has applied a brake on hiring and discretionary cost controls.
S4's market capitalisation fell to £700 million from £1.26 billion as shares dropped 47% to 118.42p.
The company in May posted 40% like-for-like revenue growth in the March quarter, with an optimistic outlook for the full year.
However, the latest trading update says earnings and margins were “below its expectations for the first half of the year”.
Like-for-like revenue and gross profit/net revenue growth were in line with full year run rate expectations of 25%.
However, continued significant investment in hiring, particularly in the content practice, had a negative impact on first half EBITDA (earnings before interest, taxes, depreciation, and amortisation) and EBITDA margin.
S4 has lowered expectations for its target EBITDA for the full year to £120 million while maintaining the target of 25% like-for-like gross profit / net revenue growth.
Market analysts currently forecast EBITDA in the range of £154-£165 million.
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