WPP Strengthens Digital Arm - Analyst Blog

Advertising titan, WPP plc’s (WPPGY) wholly-owned subsidiary, Possible Worldwide recently announced the acquisition of a 70% stake in Gringo Publicidade Ltda. Financial terms of the transaction were not disclosed.

Gringo is a leading digital agency in Brazil and was founded in 2006 in Sao Paulo. It employs 65 people. The agency generated roughly R$10.4 million revenues for the year ended December 31, 2010. Gross assets for the same period were R$3 million.

Possible Worldwide is a global interactive marketing agency and a part of WPP Digital.

The acquisition will enable Possible Worldwide to leverage from Gringo’s solid client base including companies like Coca-Cola, Absolut Vodka, Microsoft and Itau Unibanco. Moreover, it fulfills WPPGY’s objective of expanding its capabilities in the digital, direct and interactive disciplines.

Earlier, the company had acquired a majority stake in F.biz Ltda, the largest independent digital advertising agency in Brazil. With a strength of over 200 employees, the company served clients including Campari, Itau, Vivo and NetShoes.

It is evident from these strategic acquisitions that the company is working hard to expand its presence in growing markets, like Brazil. The country is WPPGY’s eighth largest market generating over R$1.1 billion and employing over 4,500 people.

Based in Dublin, Ireland, WPP Group plc provides advertising and communications services worldwide. The company emphasizes new and rapidly developing markets, new media and consumer insights. Moreover, effective pricing power supports margins and profit growth.

For the full fiscal year 2011, management expects revenue growth, excluding the impact of acquisitions and currency fluctuations to be over 6%; while its full year margin is quite likely to exceed the company’s margin improvement target of 0.5%.

The company faces competition from its peers like Interpublic Group of Companies Inc. (IPG), Omnicom Group Inc. (OMC), and Publicis Groupe SA (PUBGY.PK).

We currently maintain an Outperform recommendation on the stock.

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