WPP's China Strategy Is A Key Element To Company's Value

WPP hosted an “Investor Day” conference Wednesday that focused on the holding company’s activities in China as well as its global operations in media investment management and measurement. 

The conference was held in London and streamed via its Web site.The half-day conference is being archived on the WPP Web site with lots of supporting charts, graphs and other materials that executives used to support their presentations. The presenters included WPP CEO Martin Sorrell; GroupM Global CEO Irwin Gotlieb and recently appointed GroupM North America CEO Brian Lesser -- who as CEO of Xaxis steered the programmatic, DMP and data-crunching unit to the nearly $1 billion (billings) business that it is today. 

Others presenting included Bessie Lee (WPP Greater China Country Manager); Doreen Wang (Global Head of BrandZ); Tom Doctoroff (J. Walter Thompson Asia-Pacific CEO); Patrick Xu (GroupM China CEO) and Eric Salama (Kantar Chairman and CEO).



Pivotal Research Senior Analyst Brian Wieser listened in and shared his thoughts on the highlights in a research note, parts of which are excerpted below: 

WPP’s commitment to China remains steadfast in the face of softening conditions, and its presence there remains an important element of the company’s near-term and long-term value to clients and investors, alike. Today it is by far the largest holding company in the country and the region, with $1.5 billion in revenue for Greater China last year. 

Greater China is now the company’s third largest territory, equal to around half of their UK business and around one quarter the US business. 

GroupM China generates approximately $250 million in annual revenue on $9 billion of annual billings (per RECMA), which are both significant figures. We also thought that a data point on the unit’s branded entertainment division was notable. The company expects $10 million in revenue from related activities this year (up by 207% year over year). This is notable as branded entertainment is an increasingly important tactic for marketers and an increasingly important revenue growth source for media agencies around the world. 

Commentary on global media agency activities highlighted the holding company’s overall billings scale, which per RECMA amounted to $106 billion last year (vs. Publicis media agencies, which totaled $80 billion) and its relative success in pitches during this “mediapalooza” year. 

WPP claims $1 billion in net media billings gains from its top five wins and top five losses year-to-date, well-ahead of Publicis and Omnicom, on WPP’s estimates (as well as versus Dentsu on our own estimates). 

However, on our assessment we think that IPG is probably ahead of all others, with relative gains driven up by a different assessment of the scale of the Johnson & Johnson media buying win and losses mitigated by what we believe is the relative insignificance of the US Heinz loss vs. what WPP has estimated. 

Xaxis, the company’s primary programmatic media sales platform, provided updated estimates on its activity. The unit expects $950 million in gross revenue this year, up by 27% versus 2014. The company also noted Xaxis presently has 1,100 employees. On these metrics, Xaxis is relatively comparable in scale (if not identical in its specific ad product orientation) to Criteo and Rocket Fuel. 

Commentary on WPP’s data management platforms inside of Xaxis and elsewhere at WPP (within a unit of Wunderman called KBM) highlighted WPP’s unique position in having developed two such platforms in-house vs. none that we are aware of at other holding companies. 

To the extent that DMPs represent highly strategic tools for the marketing services and marketing technology industries, this should prove to be a notable advantage for WPP now and in the future.

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