Why the long-term S4 Capital growth story remains firmly intact - Curation Collective

Looking at S4 Capital’s share price chart, you’d be forgiven for thinking the firm had suffered some terrible fate, become embroiled in a headline-grabbing scandal, or faced allegations of serious financial irregularities.  

S4’s share price gathered momentum and kept rising after the outbreak of the Covid pandemic as it rode the bull market that saw many tech and digital stocks go on rampant runs - by September 2021, S4's price had peaked at 831p, and the company surged to a £5.2bn market cap. However, since reaching this dizzying height, S4 shares have shed almost 95% of their value, and despite falling to a low of 47p in December 2023, this share price drop presents a promising buying opportunity for investors.  

Its disappointing market performance is not indicative of the full S4 story either. The innovation, experience, and talent that instigated its meteoric rise remain ingrained in the company, and a price chart naturally does not include any context explaining the advertising sector’s crash in 2022 – a decline not seen since 2009’s post-financial crisis advertising recession. 

 The Curation Collective was recently joined by S4’s Founder, Sir Martin Sorrell and Executive Director, Wesley ter Haar, to discuss why the S4 story remains very much intact despite short-term obstacles derailing its rapid progress. 

Disrupting the status quo

S4 pursued an aggressive acquisition strategy in its early years as it sought (and succeeded) in upsetting the advertising applecart dominated by the “big six” agencies. Now, S4 has the largest client base by a distance of the four agencies considered “disruptors” of these advertising giants.

Headline acquisitions included Dutch digital marketing agency Media Monks in 2018 for £266m, as S4 beat Sir Martin’s former agency WPP to acquire the firm Wesley founded back in 2001. Since then, Media Monks (now rebranded Media.Monks) has become one of S4’s flagship brands, bringing a multitude of media, tech, and data companies under the Monks umbrella, including software development house TheoremOne and data analysis firm 4 Mile Analytics to name just a few. 

Although this acquisitional strategy generated rapid growth during Covid amid a media and marketing industry abuzz with activity (2021 saw an 82% YoY increase in M&A deals in the sector compared to 2020), S4 became a victim of its own roaring success. When the post-Covid economic slump hit, exacerbated by war in Ukraine and inflationary pressures, it laid bare the structural inefficiencies inherent in this rapid, acquisition-led strategy. 

Improving operational execution 

As a result of these macro pressures, S4’s decentralised structure had to give way to a more centralised model – a process Wesley and Sir Martin are focusing their energies towards solving. Indeed, Sir Martin argued that the S4 “strategy is clear: digital-only, data-driven, faster, more efficient, and aided by AI and entry structure. Our issues,” he explained, “are about process,” which Wesley believes S4 will solve by executing the “day-to-day better.” 

With 2023 bringing continued geopolitical and economic uncertainty, Wesley described how some clients “are just battening down the hatches in Q4, keeping costs extremely low - get it over the line type stuff.” Despite caution in some quarters, growth signals are encouraging for S4: Sir Martin and Wesley revealed during the club call that although the linear advertising market is down, digital is up 8-9%, packaged goods clients are actually spending high due to inflation as their ad spend directly correlates to revenues, its biggest client upped ad spend 4% this year, and S4 has become the biggest growth player in the beauty market.

Unlocking advertising’s original intent 

AI has been the buzzword of 2023. Many firms exaggerate their use of the technology in a bid to keep up with secular trends, but S4 are true AI proponents and were early adopters. Reflecting its innovation in this field, Media.Monks was recently declared the inaugural winner of Adweek’s AI Agency of the Year.  

Wesley described how AI enables the advertising industry to reach its full potential as it is “the technology that unlocks the original promise of digital advertising.” The generative AI boom has essentially accelerated what S4 can deliver to an exponential degree, allowing it to scale its offering without budgetary or personnel constraints. The result of this uncapped productivity potential is hyper-personalised experiences on a previously impossible scale – “what took you three weeks now takes you three hours,” explained Sir Martin. 

Many people view AI as a content-generating machine – whether that’s in the copywriting, film production or design fields - but its uses go far deeper when rolled out across a business. Even the day-to-day procedural improvements and operational efficiencies Sir Martin and Wesley strive for will be aided by AI. Media.Monks’ Chief Innovation Officer, Henry Cowling, writing in a post celebrating the Adweek award explained: 

Each element of the marketing mix—data, media, creativity and technology—must combine for AI to be deployed at its fullest potential...That’s why we’ve built a flexible, AI-driven pipeline that connects a wide range of proprietary and third-party microservices across a single workstream. In addition to making it easier to develop content at scale, the workstream critically has the potential to break down siloes between marketing and adjacent parts of the business. 

What next? 

When considering S4's current challenges, one cannot ignore the difficult macro environment facing the advertising sector. Although the market is more nuanced than headlines suggest as pockets of growth persist, firms are generally acting with caution in a challenging geopolitical and economic environment.

But the advertising industry will see boom times again, and when it does, S4 will likely be riding its tailwinds. Ultimately, the story that took them over £8 per share remains: they have immense talent within their ranks, hold an enviable portfolio of firms, are disruptors and innovators in an industry previously dominated by the “big six” firms, and many of its largest clients are upping ad spend off the back of strong performance.

Once S4 turns the needle back the right way, we wouldn’t want to bet against a repeat of the monumental growth the firm experienced in 2021.

Those who backed S4 at 47p could be in for an exciting ride.