BoAML: Digital accounts for 30% of WPP revenues

Digital currently accounts for about 30% of WPP revenues – “nearly double its closest competitor” – according to Bank of America Merrill Lynch (BoAML).

WPP is targeting 35%-40% by 2016, according to BoAML, reporting from an investor day with WPP earlier this week. “The presentation highlighted the importance of data and increased our confidence that WPP’s investment in proprietary technology, market research and analytics will become an important point of differentiation, driving market share and profitability,” the bank said.

“While we believe digital is ‘deflationary’, allowing corporates to spend less and get more, the role of the agency becomes increasingly important in a digital world allowing it to capture a greater share of spend. We see WPP as ‘best of breed’ given its scale, leading positions in digital and EM, and attractive valuation (a 30% discount to Publicis), and maintain our Buy rating.”

Commenting on WPP’s Xaxis platform, BofAML’s research analyst, Daniel Kerven added: “Xaxis leverages data, technology and scale. It is using technology to buy media more effectively, reducing wastage for clients. WPP is unique in that it uses its own technology and algorithms, and can leverage its audience data, which is being pulled together from across the group by the ‘data alliance’, to allow it to better understand the value of impressions.

“Furthermore, Xaxis is using its scale to buy premium inventory on a proprietary basis, giving it a competitive advantage and potentially higher margins than peers.”

On company growth forecasts, Kerven said: “WPP indicated that organic growth in September was broadly in line with July (+4.3%). Given c6% growth in August, this would imply c5% growth in Q3, in line with our estimate of 5.2%. We forecast organic growth of 5.5% in 2011 and 2.4% in 2012, with support from maxi-quadrennial factors partially offsetting our assumption of a weak macro environment.”