Sorrell's S4 confident on 2026 despite hit from MidEast conflict, AI spending

By Rishab Shaju

March 24 (Reuters) - Martin Sorrell's advertising group S4 Capital SFOR.L on Tuesday forecast 2026 net revenues would meet analyst expectations despite a first-quarter hit from lower client spending from the Iran conflict, sending its shares up as much as 27%.

The group said 2026 like-for-like net revenue will be in line with analysts' consensus and that it is targeting higher margins, with second-half performance expected to improve from cyclical demand following lower first-quarter net revenues.

S4 shares jumped to as much as 26 pence. The stock had been under pressure in the past year from weak client spending, which forced it to cut its revenue forecast four times during 2025.

AI SPENDING TO STAY

Artificial intelligence is reshaping the ad industry by automating content, driving demand for data-driven campaigns and shifting businesses' spending towards AI-led efficiency initiatives - a trend Sorrell said is here to stay.

"I think we've gone from a sort of cutting phase on marketing spend to stabilization," Sorrell told Reuters in an interview, citing recent varying spend and hiring across technology behemoths, largely in the U.S.

S4's clients include Google parent Alphabet, Amazon and Meta.

Meanwhile, heightened uncertainties from tariffs and the escalating U.S.-Israeli conflict with Iran continue to weigh on business and consumer sentiment.

Sorrell said the company will have to wait and see the impact of the war on client spending. S4's revenues from the Middle East account for about 2-3% of its total.

COST CUTS PAYING OFF

S4 has been cutting costs and streamlining operations to offset pressures on margins and has sought to cut debt. It is hoping a full-year impact of the drive will be seen in 2026, even as it anticipates that clients will remain cautious in the near term.

The company reported operational core profit of 81.2 million pounds ($109.03 million) for 2025, above its own forecast of 75 million pounds, after margins improved on net revenues of 673 million pounds. It lifted its final dividend by 10% to 1.1 pence apiece.

($1 = 0.7448 pounds)