Q&A: Martin Sorrell discusses S4 Capital's strong first quarter, says data 'is not the enemy'
S4 Capital, the self-billed new era digital advertising and marketing services company founded by Martin Sorrell after his resignation from WPP last year, reported a strong first quarter for 2019.
On Friday, S4 reported first-quarter revenue rose 38 percent to £40.9 million ($53 million) and gross profit was up 34 percent, on an adjusted basis, to $42.7 million. Like-for-like revenue increased 35 percent in the first quarter. In the critical Americas region, which represented 65 percent of the company's total revenue, sales and gross profit were both up 31 percent for the three-month period ended March 31.
MediaMonks, the digital content company S4 acquired last July, represented two-thirds of the group’s total gross profit and was up 27 percent in revenue, 25 percent in gross profits and 20 percent in like-for-like sales in the first quarter. MightyHive, the programmatic media planning and buying business S4 bought in December 2018, represented the other third of the group’s total gross profits. MightyHive’s first-quarter revenue spiked 80 percent, gross profit rose 80 percent and like-for-like sales grew 71 percent.
Shares of S4 Capital rose nearly 7 percent in London following the report’s release.
“Speed in all senses of the word is becoming a crucial competitive advantage and differentiator and we don’t have to set up an institute to learn that. We just listen,” Sorrell said in a statement, taking a pointed jab at WPP, which unveiled this week the Institute for Real Growth, designed to help CMOs tackle their most pressing business challenges.
WPP last week reported first-quarter net sales fell 2.8 percent and 8.5 percent in North America.
Ad Age caught up with Sorrell briefly on Friday morning as he sat aboard a plane that was readying to take flight from the tarmac. This interview has been edited for brevity and clarity.
Where are you seeing clients' budgets going?
On digital content and programmatic driven by first-party data. Those are the two areas that we are focused on.
Where are you seeing the most opportunity in first-party data?
Across the board. With the tech and digital companies, it's probably easiest because they’ve developed their databases organically and not through acquisitions or moving from analog to digital or legacy to digital. But it’s also with analog companies, as well, which are trying to make their data sets compatible so they can use first-party data to compete.
You mentioned one of S4's competitive advantages is speed. Can you explain how you’ve been able to achieve this?
In a 24/7 world, which is always on, campaigns are intricate. You have your big ideas. You develop those big ideas from data that you have. You create assets at scale, so a large number of assets to deploy, digitally and programmatically that then produces further data that conditions the content that you distribute programmatically. It’s a continuous loop driven by data which refines and develops creativity. It’s not the enemy of creativity as some might [see] it but it actually makes creativity more effective. It’s a continuous refinement of short-term, long-form and fit-for-format content. It's not cut down to TV commercials but developed specifically for new platforms.
What are the areas in which S4 is planning to further invest or enter?
We want to further develop our content platform. And, if we have the opportunity, [we want] to develop first-party data that’s not dependent [on existing technology] or could be displaced or inundated by new technology but can be complimented by new technology. They’re not easy to find. They’re expensive. But that’s what we’re focused on, those three areas, what we call the holy trinity: first-party data, driving digital content and programmatic.
What are your clients' biggest challenges and how are you thinking about them going into the second quarter?
It’s lack of speed particularly amongst smaller companies that are trying to move into digital areas. The key issue is the responsiveness and speed. The second issue is use of technology in the most advanced way as possible so that’s where the better comes in. Cheaper is probably not the right word. It’s certainly more efficiency. That mantra of faster, better, cheaper is the real focus. We’re purely digital. I’m not interested in traditional. We’re interested in where the growth is. The industry is about a trillion dollars of which about $500 billion is in new and old media, the old media is about $300 billion and the new media is $200 billion. Digital is growing at about 20 percent. Traditional is either flat or down. The industry is growing about 3 to 4 percent. The reason our growth rates are stronger is that they focus on the digital areas. ... We opened our first office that [houses both] MediaMonks and MightyHive and we’ll be doing that in other offices around the world.
When will digital finally overtake traditional media?
I think it already has, depending on how you define traditional media. If you take it as TV or newsprint, it already has. I think the forecast is by 2022, digital will be at over 50 percent. Right now it’s at 40 percent.
How do you plan on continuing this growth momentum to keep outperforming the competition?
It’s not a peanut. It’s a coconut. We’re in the beginning. We should outperform them given our scale but the reason we’re outperforming the market is we’re focused on where the growth is.