For the first time, S4 Capital has reported a modest first-half, pre-tax profit. Despite headwinds from Covid-19, the company posted earnings before tax of £118,000 for January to June, compared to a loss of £8.5m over the same period last year.
The pandemic performance was backed by a series of acquisitions and client wins that have helped the business offset the impact of Covid-19.
Founder Sir Martin Sorrell believes S4 is now in a ”growth sweet spot” after a strong start to the second half, with activity recovering from a low point in April.
The topline numbers
Crunching the numbers further, S4 Capital’s net revenue jumped 6.9% on a like-for-like basis to £141.3m for the six months to the end of June.
Organic revenue was up 3% in April, 5% in May and 11% in June.
Billings rose by 12.7% to £260.4m.
Gross profit also headed in the right direction, rising 12.2% to £124m on a like-for-like basis.
July like-for-like gross profit up 18.2% and pro forma up 14.6%.
How does S4’s performance compare to the major ad networks?
For the quarter, the Media Monks owner posted 6.5% like-for-like organic revenue growth between April and June 2020, putting it comfortably ahead of its major holding group rivals.
WPP posted a precipitous revenue slump of 15.1% over the most recent quarter.
Other holding companies fared little better, with Interpublic and Publicis Groupe posting losses of 9.9% and 13% respectively over the same period.
The largest declines occurred at Havas and Dentsu Aegis Network, which fell by 18.3% and 20%.
Why does it matter?
Sorrell’s venture has proved to be fleeter of foot than its more established rivals, with billings and revenues both defying economic gravity.
Astute specialisation in tech brands as well as FMCG clients such as Twitch, Bumble, Verizon and Shopify is behind this performance.
Another growth driver has been its transition to a new agency model, with two more ”whopper” clients set to be revealed shortly to sit alongside Google and another unnamed tech giant.
Refusing to rest on his laurels, Sorrell believes a strong start to the second half of the year with double-digit revenue and strong profit growth means it has a fighting chance of doubling organically between now and 2022.
Optimism abounds for 2021 too, with a post-pandemic recovery expected to buoy this organic growth rate further.
S4’s aggressive expansion contrasts with a broader slowdown of mergers and acquisitions as caution rules the day.
What did Sorrell say?
Echoing the widely held view that Covid-19 has accelerated a pre-existing digital transition, Sorrell said S4 Capital has hit a ”growth sweet spot”.
Sorrell added: ”These results confirm that S4 Capital is currently in a growth sweet spot 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.”
Looking to the future, Sorrell has vowed to further engrain the business in the tech, healthcare, financial and FMCG sectors, stressing a ”new client conversion target” of reaching 20 clients with over $20m of annual revenues.