By Kate Holton

LONDON, (Reuters) – Martin Sorrell’s S4 Capital announced it will invest in technology and new employees to benefit from a booming digital ad marketplace. This investment is hitting the shares despite continuing strong underlying profits growth.

The purely digital S4 was founded by Sorrell (founder of WPP, the largest advertising firm in the world) three years ago. It has seen rapid growth since then, with the acquisition of businesses that combine digital content with consumer data to serve companies like Burberry, Netflix, Google, and Burberry (NASDAQ).

Company reported a third-quarter increase in like-forlike gross profits of over 42%. This would allow it to comfortably surpass its full year target of 40%.

However, investors were focused on the fact that the core earnings margin of the business would go towards growth in order to profit from the market changes. The pandemic is forcing companies to speed up their adoption of digital technologies.

As investors got used to it updating its profit forecasts every report, the shares of the company were 10% lower.

One of the most prominent advertising firms in the world has been at the forefront of global corporate recovery after the coronavirus crises. They have helped companies spend on brand advertising, digital advertising, and e-commerce platforms that tap into renewed consumer spending.

S4 produces only digital advertising and is the fastest-growing market segment.

Sorrell explained to Reuters that after the company grew to 7,000 employees in 33 countries it needed to continue investing in software and talent to help large clients and move into areas like connected TVs.

He said that although we have tempered our guidance regarding EBITDA, it will remain strong. Most analysts think they are around 18-19% for the year. He also stated that inflation tends to make companies, such as consumer goods organizations, spend more on advertising in order to justify higher prices.

Peel Hunt analysts stated that they have reduced their margin expectations, which has resulted in a 10% downgrade of earnings per share for the 2020 financial year. But, the analysts said they believe the group’s future would be better if it invested in talent.

($1 = 0.7414 pounds)