Martin Sorrell’s S4 Capital lowered its full-year earnings estimate a few weeks ago amid a "hiring break" and after 2021 financial results were postponed twice due to audit issues. Now, S4's executive chairman is looking to "build back better."
S4 reduced its guidance to £120 million ($123 million) from approximately £154-£165 million ($157 million-$169 million). In a statement, S4 claimed that its content practice had staff costs that “continued to increase ahead of the gross profit/net revenue growth rate.” As a result, S4—which owns Media.Monks—issued a “brake on hiring.” This is in line with moves by Google, Amazon and Facebook, while other companies including Shopify have issued layoffs.
S4 is still targeting “like-for-like gross profit/net revenue growth” of 25% for the year, but shortly after the updated guidance was released the company’s stock market value dropped by 50%.
Ad Age interviewed Sorrell a week after S4 issued its profit warning. This interview is edited for clarity and length.
How do you plan on coming back from this?
We have to build back better. We are not here for the short term, we're here for the long term and we just have to reestablish, obviously, credibility has been affected, so we have to build back better. We have to in a way, start again. Obviously, it's not starting again where we were four years ago. The company has doubled in size organically—I'm not talking through deals, it's doubled in size or will double in size from 2020 to 2022. The organic growth rate, as you also saw from the guidance, was over 25%, and we reiterated that guidance for the full year. There aren't many companies in our industry, however you define our industry, that are growing at this rate. So, some analysts talk about it as being growing pains. It is not easy to grow a business organically. Forget about deals that have added another 25% [of employees] each year. So you're growing about 50% a year, which puts a lot of pressure on the systems and processes. That's something we have to get right. So some people would describe it as growing pains. That's probably a little charitable, but I think directionally it’s probably true.