Member Info for RunS4

I can't see the dividend being cut. They'll hold the line on dividend, unless a miracle kicks-in in q1, but with S4 you know that's just fantasy.

Auson - you're probably right with GM and it could be the same with new wins at the 2 global CPG companies. Policy uncertainty is high and unless you have the large media scale of Publicis which is sucking business out from WPP and others, or maybe even Omnicom which is faring a bit better, you're probably down in the dumps.

I suspect WPP will give another profit warning in the coming weeks and highly likely to cut dividend too - that dividend is what isn't sustainable.

CharlesM - yep, don't disagree with this. We'll probably end with a circa 11 - 12% revenue decline for FY 2025, and the best case for holders here is that they will do another write-down on their acquisitions, and we start 2026 with a clean accoounting slate. With the scale of revenue declines in 2025, it's hard to argue for anything other than upto 5% revenue decline in 2026, and they need to be bold and cut non/under-utlised billable staff to get headcount to 6000 or under and bring costs down to at least 70% of the reduced projected revenues.

Whether they have the cojones to do this or not is questionable, but this band-aid therapy just isn't working. And get the f*ck out of the LSE with the primary listing.

I can't defend the indefensible and this is pure crass. If there was a market sell-off, we'd be down to the low teens if not less. Goodness me - they really need to cut deep in the US as this hanging on hopes of recovery isn't a recipe for future sucess. Martin hopes he's right, but the market he's chosen to stay listed on has given its verdict.

RWD - I can only assume that Martin assumes that revenue will rebound next year and hence he's hanging on to billable resources for dear life. And we can see there have been a lot of senior hires this year to try and push the S4 being a one-stop shop narrative out to prospects/customers - 'we have deep Data/tech/content/marketing strategy capabilities' and so go with us. It hasn't resonated yet in 2025 and the big question is could the tide turn in 2026? if there's no improvement in Q1/Q2 2026, Martin and his honchos should bite the bullet and

- Make large scale billable role cuts to get costs to revenues ratio to circa 65%

- they'd probably make a shiite load of FCF post these cuts and they could strongly look at the go-private option. The high average holders will lose out as I suspect a takeout could could be at an EBITDA multiple of under 10, around 7 or 8 if the no growth scenario still persists. That could mean a circa £400 to 500m buyout (60 to 70p).

Contrary to what many think, the debt isn't much of an issue and in a falling interest rate environment we're in, debt refi to the extent needed shouldn't be an issue.

Lets also look at couple of LinkedIn posts that puts a bit more colour of S4's predicament. THere's opportunity, but the tech sector concentration has a consistent revenue downer since 2022. The suggestions in the second post - could they move the needle if followed-through.

https://www.linkedin.com/posts/stephenboehler_is-the-s4-strategy-doomed-the-expectation-activity-7392237590038487041-bXts

https://www.linkedin.com/posts/michaeldburton_the-s4-capital-group-earnings-call-when-activity-7392927632331317248-YMg8/

Respect to you both, Caveman70 and CharlieM. That's far greater averages and presumably duration, than I've involved in here. I've only started small in October 2023 and still buying here now. Average near 30p for me on a rather large position, so the paper loss suffering is humungous.

TBH, I've officially given up defending old Martin or his next to no use forecasts. However, I still maintain that this is not a business that should be valued where it's at - circa £120m on a £40m EBITDA runrate, with no existential debt trap to contend with. This F**ked up UK stock market contends with only ome metric and that's revenue growth, and after the forecasting debacle this year based on tech Ad spending utopia PLUS a normalised economic growth scenario - I can't put much credence anymore on this lightweight's forecasting skills anymore - and he admitted as much on the last earnings call.

Having said all that, this is but a directional play on US economic growth + diminishing uncertainty. None of these are guaranteed at this point in time and hence us floundering at these levels on this stu*pid market.

Some very good conersations the past 2 days - RWD/Broke -- I can't argue with what you're saying, and against the best instints of mine, I can't say what returns S4 to a revenue growth scenario other than there being good US econimic growth in 2026. We know hope isn't a money making strategy, but other than the fact that we're now paying circa 6% yield and we don't have distressed debt driving shiite valuations - it is unbelievable that we're sitting at these levels, but there's nothing that Martin and the other lads up at the top table are doing that justifies anything higher!! Sadly.

Good weekend all.

"me being wrong again about S4 NOT flipping the script AND REVENUES RECOVERING without help from the macro economy. :-)" - Typo..

It's good for Nvidia as the Capex cycle is still continuing very strongly and the likes of Meta are and will continue to spend like crazy on AI data centres.

Less so for us and we might scrape the bottom of the barrel for a while yet until the US economy turns around. Happy to be proven wrong on this count, but then I've been consistently wrong about the US macro in 2025, bar AI Capex spend, and that must count towards me being wrong again about S4 flipping the script without help from the macro economy. :-)

"We are in basement territory but it remains to be seen if this is actually a bargain."

I don't disagree with this. There is a small danger that this could become a perennial value trap, but given that the company valuation is now at £125m and we could be generating £30m FCF over the next few years even if revenue growth is negative to tepid, that danger scenario may not come to fruition. But yes if you did invest a hell of a lot over £1 and didn't average down, then there is more than enough danger that this is a value trap for such holders.

"I haven't had time to look through Meta's earnings in detail, only skimmed, but a good chunk of the drop seemed to be due to the tax hit, no?"

Borke - No, not really. They've projected Capex spend above $72b for 2025 and likely above $105b for 2026, Madness. FT article link below.

https://archive.ph/TAg4L

The other bigger problem for them is this whole Capex depreciation fudge. They are depreciating this spend over 6 years versus at best a 3 year life-span for these chips - That's BS. And reeks of Accounting Fraud in reality.

Let's not forget that the market has hammered down Meta's stock price from $800 to $584 today on the back of their push to keep Capex higher. How long will the never-ending capex saga continue? They've had a blow-back once with Metaverse and you'd think that this is a version 2, except the scale is vastly greater than that debacle. Plus they are fudging AI chips depreciation to keep profitability high.

It's not just the hyperscalers and Meta who'll need to pivot soon enough to Opex spend and that turn to opex will start panning out, maybe in 2027 if not 2026. S4 has no choice but to bide its time in the coming months/quarters!! I don't want to keep saying we're in basement bargain territory, but if EBITDA % to revenues is close to low teens this year, we have a fighting chance to push to mid-teens next year. Maybe more billable heads will need to roll in the US if the turn doesn't arrive quickly, but we do have the options to get that done.

The real point is not that WPP had to admit they need help - they had no foresight to notice a changed world where AI driven innvation was going to gobble their business up and they never planned for that transition.

Contrast that with S4 where they did note it, planned for it and went with it. Unfortunately, that big headwind with tech giants spending on Capex has kneecapped us in 2023/24 and the US economy is mightly struggling in 2025 and we're right now just not getting the new clients in quick enough to make a meaningful uplift in revenue. Tech services -- in case you haven't noticed that sector had a moribund 2024 and 2025. That is direct play on economic outlook in the US and maybe all the market needs to see is dumbo quietly unwind the tariff shiite he's unleashed on the US consumer and caused a recession in that part of the economy.

I really can't call whether its finally 2026 when we'll get revenue growth after 3 moribund years, but the capex cycle tempering and US economy starting to fire in 2026 could just be what corporates need to restart marketing and tech services spend.

Cheers, Auson. Is that a UK/Europe view OR is that actually a US business view?

They seemed to have hired a lot of new top tier management team globally, and the hope is that this high-cost labour will pay off when the US economy turns around in 2025

Another pertinent point in the ongoing massive AI capex spend by not just the Hyperscalers but also Meta and Oracle. Michael Burry, remember him from the Big Short as the Asperger's chap who called the GFC and bet against CDOs with Goldman as his counterparty, says these 2 companies in particular could be understating Depreciation by $176 billion because of their 6 year depreciation standard for AI capex investment. They'd be lucky if these NVDA chips last more than 3 years. Right now the US economy is being propped by AI Capex whilst the consumer economy is firmly in a recession. How sustainable are these levels of Capex investments when the scale of returns on these is still questionable.

Maybe 2026 is the year when the capex cycle moderates a bit and opex on Marketing to boost demand finally takes off, on the back of a recovering economy as the Republican gaslighters are promising their pandering apostles.

In other news, IPG is cutting headcount big ahead of their merger with Omnicom. Makes me wonder if we missed a trick by not cutting billable headcount (who're not being utilised higher) a bit more and get costs more aligned with the industry standards sooner rather than later? I know we did cut a chunk in Q3/Q4 in the non-billable group, but maybe the anticipation of a revenue comeback in 2026 is what is holding SMS back from cutting more in the billable cohort.

Just my musings as we wait and watch the 2025 paint dry!! :-)

AA - I doubt that very much.

The UK stock market as well as the sellside (cue Peel Hunt's latest note) is saying that revenue growth is the only metric that will move the needle for S4's stock price. I've now officially grown tired of looking at LinkedIn posts and deciphering where business is trending based on the AI awards we win OR the ground breaking ad content we create for our clients. If the US economy does take off next year and give some respite to the employment situation and spending as a consequence, that's maybe what will decide S4's revenue growth hopes next year. And I'm also disappounted at Q4 being another YOY revenue decline quarter after all the forecasts from earlier this year.

The dividend yield is enticing and so is the FCF generation capability in 2026/27, post the cuts this year. Fed is cutting next month and so will BOE. Maybe ECB will also get off their backsides and do something more to boost growth. These are the macro factors that could being ad spend back in 2026. It's only a hope though!!

Good trading volumes today and that's always encouraging.

YIAB - Broadly speaking, the Tech services segment of the market is still broadly in a recession in the US. All tech service providers are struggling badly and some are now just about seeing green shoots in the AI consulting services sector.

Not a big surprise that we're still stuck at the bottom there.

@Auson / @Verney - and anyone else who listened to the call, are you able to provide us key highlights from the call? I was stuck in a meeting and couldn't join the call today.

Cheers

@NigeCo - I wasn't disappointed by the slight increase in Q3 - we knew there was a £6.1m dividend payment in July and severance costs too. And Q4 is the biggest cash flow generating quarter for S4.

For once in 2025, we've cut more headcount (7200 at the end of Q4 2024 to 6500 at the end of Q3) than the drop in revenues. THat's a small positive. And I'd think we'd cut more in Q4 - I'd wager we'd land around 6250 by the year-end. And if it's high cost labour in EMEA that's been cut and this is in light of the horrible revenue drop in this region, then that's all the more better from an EBITDA viewpoint and get us closer to that 65% employee cost to revenues ratio that we should aspire for.

With a lowered cost base, if only we can get to that elusive YOY growth say sometime in 2026 now, that'll look good from a profitability viewpoint.

Poker has summarised the current state of affairs well in his post.

Tech clients pull-back is still being seen, IMO. I'm not quite sure if Google's spend has truly stabilised. As expected Q3 numbers were drab, perhaps more so than expected with a 7% YOY decline. Headcount near 6500 and the question is if that cut is enough? Probably needs more to be cut if the revenue turnaround doesn't materialise and IMO, they should cut more in Europe. EBITDA targets held and if the revenue move upwards is delivered in 2026, then its a better read. Kitchen sinking in 2025 should be the way to go.

US is trending better than EMEA/APAC and that's a relief. Next year, Rodders!!!

@Auson - indeed it is possible, and not just for their Gen/Agentic AI products, but also with their hardware products like Google's Pixel phone/Meta's AI glasses, etc (and these are probably more economically senstive/driven by cycles). And they could pivot more to this kind of Opex spend once they pull back, even if a tad, on the insane amount of capex they're throwing on AI infrastructure currently.

Ultimately if the confidence in the US economy comes back and rates go down further in 2026 on the back of stable inflation (it would be amazing if Dumbo realises his tariff policies are only causing more harm to their consumers and pulls back from that foolhardy policy), then the setup for Ad spending for 2026 could well be fantastic. Here's hoping! :-)