WPP (LON: WPP) share price drifted downwards on Monday after the relatively weak results by S4 Capital. The stock retreated to a low of 760p, down from last week’s high of 778.6p. In all, the shares have retreated by more than 27% from the highest level this year.

Other advertising agency stocks have also retreated. Omnicom Group stock has plunged by over 22% from the YTD high and is trading at the lowest level since December. Interpublic stock has also dropped to November 2022 lows. 

The advertising industry is going through a major slowdown as companies continue slashing their spending. Most companies, including well-known brands like Unilever, Procter & Gamble, and Kenvue have all reduced their marketing budgets to preserve cash.

This view was confirmed by S4 Capital, the marketing agency that was started by Martin Sorrell, the founder of WPP. In a report, the company said that its revenue rose to £517.1 million in the first half of the year.

The company also narrowed its loss for the period. Its net loss came in at over £19.7 million, down from over £82.3 million in 2022. A key concern was that the company issued a forward guidance about its business. As a result, the S4 share price crashed by more than 20% on Monday. The statement said:

“Following slower-than-expected trading over the summer months, including August and current client activity levels, full-year expectations have been further revised. Like-for-like net revenue is now expected to be likely down on the prior year.”

Analysts believe that WPP and other advertising agencies will also go through this slowdown as well. The most recent results by WPP showed that the company’s scale was helping it thrive.

Its revenue rose by 6.9% to over £7.22 billion while its profit before tax jumped to £204 million. Its operating profit came in at £306 million while the company trimmed its guidance as we wrote here. Therefore, analysts see its business, especially in China, slowing this year.

The daily chart shows that the WPP stock price has been in a strong bearish trend in the past few months. It formed a death cross pattern in June when the 50-day and 200-day moving averages made a crossover. In most periods, this pattern is one of the most accurate bearish signs in the market.

WPP share price has remained below the two moving averages since then. It has also formed a bearish flag pattern. Therefore, there is a likelihood that the shares will have a bearish breakout as sellers target the key support level at 730p.

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