Sir Martin Sorrell’s S4 Capital believes it has an “even stronger fighting chance” of doubling its business within three years after being able to turn a profit in the difficult summer months of the pandemic.
S4 today posted 6.5% like-for-like organic revenue (reported as net revenue) growth between April and June 2020, comfortably ahead of the best performing major agency holding group during that period, Interpublic (down 9.9%).
The owner of creative production business MediaMonks saw its year-on-year growth accelerate through the quarter, with organic revenue up 3% in April, 5% in May and 11% in June. It also posted a strong start to Q3, with 18% like-for-like revenue growth.
In its financial summary the company said it believes it “has an even stronger fighting chance of doubling organically over the three years 2020-22”. Sorrell launched the venture in May 2018 just a month after resigning from WPP, the advertising group he founded three decades earlier.
Sorrell, S4’s executive chairman, said: “The tragedy of Covid-19 has only accelerated the speed of digital transformation and disruption at consumer, media and enterprise levels. These results confirm that S4 Capital is currently in a growth sweetspot and that its digital only, faster, better, cheaper, unitary, 'holy trinity' model, which combines first-party data with digital content, data and digital media, is migrating from brand awareness and trial to conversion at scale.”
Ian Whittaker, the independent media industry analyst formerly of Liberum, agreed the company’s long-term prospects look “strong” but said S4’s results also showed there is still plenty of advertiser demand for agencies’ offerings.
”[T]he key is to be exposed to the areas in which clients are investing,” Whittaker said.
“S4 does not have the legacy businesses of the major agency groups and its focus on digital has paid handsome rewards. Moreover, given the accelerating switch to digital in all forms, S4 is probably the best positioned group to exploit these trends (although that is not to say that other agency groups can not eventually overhaul themselves – but it will take time).”
In an interview with the Sunday Times on 6 September, Sorrell again criticised legacy advertising companies, particularly WPP, for being “not fit for purpose”. This is despite Sorrell still owning 2% of WPP stock.
S4 has benefited from having a client base heavily skewed towards tech, with 54% of its first-quarter like-for-like revenues in the sector, which has generally been resistant to the coronavirus downturn, with consumers using digital platforms more as they socially distance. Meanwhile, it only has a small exposure to retail (2% of Q1 revenues) and travel/leisure (4%), which have been badly hit during the pandemic.
Sorrell also named four sectors in which S4 aims to deepen relationships: tech, finance, healthcare and FMCG.
Whittaker added: “One advantage S4 is likely to have, especially given the recent changes in the technology space such as the phasing out of cookies, is its strategy of combining first party data with digital content, data and media, and the increasing focus of clients of focusing on conversion into sales rather than brand awareness. That should position it to continue to significantly outperform the other agency groups as a whole."
DowGate Capital Stockbrokers, which helped its client S4 acquire MediaMonks and digital media business Mightyhive in a reverse takeover, today revealed that S4 is awaiting the outcome of two “whopper pitches each worth $20m+. Dowgate said S4 can now “see the pathway to 20 whoppers” and has already started to invest in its nascent ecommerce business (having acquired ecommerce specialist Orca Pacific in July) and media optimisation (it acquired Brightblue last month).
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