Credit: Jim Wilson via Unsplash
Pure-play digital advertising group S4 Capital, caught by a downturn in marketing spend by the technology sector, is diversifying its client portfolio and filling its pipeline with bigger pitches.
The company, created by WPP founder Martin Sorrell, reported a 11% fall to £848.2 million in revenue on a like-for-like basis for the year to December.
And clients are likely to remain cautious in a challenging economic environment, especially in a trade war sparked by increased tariffs in the US.
S4, which had been rapidly expanding via acquisitions, got caught with too many staff supported by too little revenue as US technology companies pulled back marketing spend and put more into capital projects such as AI.
The company had to cut spending and reduce staff. In 2024 employee numbers fell 7% to 7,150. Personnel and operating expenses dropped 13.5% to £660 million.
However, S4 has a strategy to get back to growth, led by Scott Spirit, the chief growth officer.
The plan is essentially to seek new business outside tech.
“We're driving a conscious effort to increase our pipeline, pitch larger opportunities, and diversify our client portfolio,” Spirit told analysts in a briefing.
The company had a “healthy” pipeline including pitching major opportunities in automotive, telecommunications, pharmaceutical and FMCG.
S4 in July won General Motors in the role of foundational agency across all four of the automotive giant's brands, producing all marketing content.
“When announcing the appointment the client made it clear that our technical capabilities were at the heart of our offer and differentiated us,” said Spirit.
“The account is ramping up brand by brand and will reach full scale later this year. It'll be a top three client for us. And we've also picked up assignments in Australia and China.”
However, the technology sector is still important.
Google, the world’s biggest digital advertising company, is S4’s largest client, worth more than GBP100 million a year, serviced by a team of more than 750 in 30 markets, working with almost 70 different Google teams and programs.
“We create content and B2B marketing for Google advertising, helping them convert advertisers,” said Spirit.
“We help YouTube drive viewership via social media campaigns. We produce performance advertising for brands like Pixel and Chromebook to help them sell more hardware.”
S4 is also one of the two agencies working for Google on media planning and buying and innovation.
Google is the ninth largest advertiser in the world, spending almost $9 billion a year.
When S4 was founded in 2018 it was with the ambition to become a disruptive force in the marketing communications industry.
The focus was on digital marketing services which at the time was 50% of spend but now is more than 70%.
The data driven approach across content, data, digital media and technology services was built to go to market faster and to be more agile and responsive; cheaper, more effective and efficient for clients.
The company expanded via M&A, in a series of what S4 called mergers, to broaden the service offering, client portfolio, geographical coverage and talent.
At the same time, new business wins such as BMW and Mondelez and the expansion of our existing relationships added to organic growth.
Digital marketing and the technology sector boomed in the post-COVID recovery, fuelling S4’s top-line growth in 2020, 2021 and 2022.
By the end of 2021, starting with nothing in 2018, the company had made 27 acquisitions and had grown to nearly 6,000 employees.
Spirit said the watershed was 2022.
“First, we needed to catch up on implementing internal processes, systems, policies, and controls,” he said.
“And second, our staff numbers and costs had grown disproportionately faster than revenue and negatively impacted our margin that year.”
And then came the auditing issue around the issue iof deferred revenue which delayed the publication of 2021 financial year numbers.
This hit the share price and dented investor confidence.
“In the last three years, we've had no other issues of this kind, and all results have been released on time and unqualified.”
Anticipating growth, S4 hired aggressively in 2022 to service existing clients and prepare for another strong year.
“Unexpectedly, the tech companies pull back aggressively in 2023, with significant redundancies and cost cutting addressing their over-expansion post-COVID.
“(Facebook founder) Mark Zuckerberg referred to this as Meta's year of efficiency and others followed suit.”
Sales and marketing expenditures were reduced across the board. Meta's spend was down 21% in 2023 and its margin increased from 25% in 2022 to 35% in 2023 with its share price surging almost 200%.
This approach to cost discipline continued in 2024, driven by their strategy to significantly invest internally, mainly hardware and software related to artificial intelligence.
In 2024, Google, Meta, Amazon and Microsoft increased capital spending 56% to almost $250 billion.
“This meant further pressure on operating and marketing budgets in 2024, with Google and Meta both down and Amazon flat.
“This affected our competitors too, but given we have almost 50% of our revenues in technology, it's had an outsized impact on our ability to grow.
“The content relationship with Mondelez ended in 2023, and in 2024, First American, a tech services client, has seen very significant pressure in their business, given higher interest rates and as a result decided to ramp down in in-house the work streams they had with us.”
And now S4 goes into 2025 with a three-year plan, stabilising the business and focused on reinvigorating growth plans.
“We have a clear go-to-market strategy which leverages our service capabilities and is underpinned by our expertise in data and technology,” said Spirit.
“Our first offering is around brand relevance and the challenge that clients are facing is that it's a cluttered world and how do they keep their brands relevant and current and build their brand power in the market.
“For this, our go-to-market is called real-time brands where we bring the best of our social experience and brand capability to bear. The principle here is that with our creativity, social-era brands approach, combined with the power of data, we can be constantly adapting brand messaging to leverage and contribute to culture.
“Or put more simply, we see creativity as inspiring through an ongoing and live conversation with people, not something that is finished and shipped as a campaign in traditional formats. “We work in real time at the same speed as consumers to help our clients' brands be more relevant and strong.”
Spirit said clients also report too much complexity. They feel like they're falling behind due to distraction.
“When their agency model is unwieldy and fragmented, it increases cost, reduces spend and quality and distracts their teams,” he said.
“For this, our go-to-market is the orchestration partner model, where Monks (as those who work for S4 are called) are the trusted partner to significantly reduce the complexity and cost of the agency ecosystem.
“With an open source model that allows clients to plug in ideas from us or from elsewhere, but with our AI super powered workflow suite Monks.Flow, we make sure the right message gets to the right audience in the right channel faster and cheaper.
“This is the go-to-market for which GM appointed us in June last year and this was a disruptive moment for the industry with the replacement of a traditional holding company model with Monks and some creative hot shops. We believe there'll be more of this to come.”
Another challenge is around media efficiency.
Clients tell S4 they need to best manage marketing costs and the number one line item in that is media.
The clients says: “I'm concerned that I'm wasting spend and that my agency is not recommending what's best for me but what's best for them.”
S4’s solution is Glassbox Media, transparent media operations with AI tools that allows clients directly observe and manage their investments.
“In a black box world, we're taking a Glassbox approach,” said Spirit.
Clients also say they want to work in a faster, better, cheaper way but are beholden to legacy ways of working and technology debt without dated systems and processes.
“We help clients address this through digital business transformation,” Spirit said.
“Our technology services and consulting practice enable transformation in clients via data optimisation and management, tech stack integration, digital consumer experiences, cloud migration, AI, automation, and other aspects of harnessing technology innovation.”
Slides from the briefing of market analysts:
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