Sir Martin Sorrell, founder of WPP plc, speaks with Yahoo Finance's Brian Sozzi at the World Economic Forum (WEF) in Davos, Switzerland about key themes at the conference, the state of the advertising industry, Snap earnings, and Apple rule changes.

Video Transcript

SEANA SMITH: Our coverage of the World Economic Forum in Davos, Switzerland. And our own Brian Sozzi spoke with s4 Capital founder and CEO, Sir Martin Sorrell, got his take on the recent downturn in tech stocks. But first he asked him about the focus of the conversations at the conference. Let's take a listen.

MARTIN SORRELL: Two big issues-- the war and US-China relations. I think everything else is sort of really taken a little bit of backseat. Things like climate change, obviously, front and center around everybody's agenda. But in these conversations, I think the two issues that people are focused on is the war and US-China. And the lack of relationship between the US and China, I think, is particularly troubling.

Obviously, Ukraine and Russia-- the Russian economy's about $1 and 1/2 trillion. The Chinese economy is a totally different level, around $14 or $15 trillion. So I think that's where people's minds are.

BRIAN SOZZI: A lot of talk coming into this event was potential US recession, is Europe in a recession? But then mid-week, we got thrown a real curveball, and that's Snap results. And I think cast a lot of dark clouds.

MARTIN SORRELL: Well, you've got to look at two things. You're talking about the digital economy and a recession. Those are two different things.

BRIAN SOZZI: What did that report-- as a advertising legend, what did that Snap report tell you about the state of the industry?

MARTIN SORRELL: Well, you can't generalize from a Snap. You have to remember that Snap, in the order of things, is about $5 billion, $5 and 1/2 billion in terms of ad revenues. The global ad revenues last year were $450 billion and are forecast to grow this year still despite GDP growth rates coming down from 4% to 5% to, say, 3%, 3%-plus. The IMF, the World Bank are at 3%-plus and may take it down further.

But despite that, digital growth rates the sort of forecast around 15% for the world and about 20% for the US. So there's a continued shift from analog to digital. Having said that, Snap at $5 billion-- Google was, what, $215 billion last year, Facebook at $115, Meta at $115, Amazon at $31. So those are the three dominant platforms in the ecosystem. You can't generalize from Snap because it is smaller.

You can't generalize from Snap because they're top of the funnel about brand awareness rather than performance and delivery. So it's not a good signal. I mean, everybody gets depressed by it. And everybody looks at valuations as a result.

BRIAN SOZZI: Well, the stock fell 43%.

MARTIN SORRELL: 40%-- and it's had an impact across the sector, so a little bit of a rebound today. But no, it doesn't do good for confidence. And we'll be reporting our Q1 on Monday. And you'll see what happened to us in Q1. Q1 is historic. And people are now looking at what's going to happen the rest of the year.

Earnings of companies in Q1 surprise to the upside. I think people were expecting the S&P to be up about 8%. And it came out at around 10%. Analysts' forecasts for the year have not really adjusted for client companies. We may see some adjustment downwards, which maybe will involve some correction to people's thinking.

But the digital economy remains pretty robust. The top-line growth remains really robust. Tech companies are here. We had conversations obviously with the big tech platforms here. And they remain in pretty confident mood.

So Snap, I think, you have to look at it in the context of the IDFA Apple effect, which obviously affected Snap historically and may have affected them in Q1. They-- I'm a little bit confused as to what happened there. There was an employee communication I think was part of it. And then there was the JPMorgan conference, where Evan Spiegel said-- gave effectively a profit warning.

BRIAN SOZZI: That Apple privacy, we have been-- that change. We've been hearing that about that from the big companies past two quarters as a major headwind. Is it over?

MARTIN SORRELL: I would say it's a major headwind. It has had an impact. It's actually driven ad revenues to Apple. I think we calculate they're probably doing about $10 billion.

BRIAN SOZZI: So they've benefited.

MARTIN SORRELL: They've benefited But through that change. And I think long term, Google benefits because deprecation of third-party cookies and indeed the IDFA change does a couple of things for clients. It drives clients back to first-party data. That solves the privacy issue and the consent issue because it's consented data.

And it drives clients back to the platforms and to the signals from the platforms. So first-party data plus signals from the platforms becomes the major data sources that our clients will use when they're developing targeted advertising. IDFA has had the impact-- had impact on Meta, on Facebook. We'll see what happens with Facebook and Meta in Q2. But that's had impact, and it's had impact on Snap as well.

The other thing, of course, is that Twitter has gained ground. We don't know. We haven't got-- it's not Twitter, sorry. TikTok has gained ground. We have not got data on ByteDance and TikTok. There's some data going back, I think, to 2019 that suggests that they were doing about $20 billion of ad revenues. But that was probably 100% China.

But we have seen very significant growth in TikTok. And that has affected Snap and to some extent, Facebook. But what you're going to see with Facebook, they're going to monetize Reels, which is their answer to the growth of TikTok, and indeed also against Snap. There will be monetizing that and developing that at Cannes and beyond. And I think we'll see-- and business messaging too. And I think you'll see some interesting developments from Meta and Facebook as well.

BRIAN SOZZI: You mentioned Twitter. And the saga continues there between--

MARTIN SORRELL: It was a Freudian slip.

BRIAN SOZZI: Yeah, of course it was, and Elon Musk. But let me ask you this. Do you think Twitter could be successful if it is no longer reliant on ad revenues, as Elon has suggested?

MARTIN SORRELL: Well, I'm a little bit puzzled by that so because the maths puzzle here. I think Elon said he was going to drive the revenues up, quintuple the revenue. So if they're at 5, that would make 25. I think he said he was also going to drop the advertising from 90%, about $4.5 billion, to 50%. Well, 50% of 25 is $12.5 billion, which is almost a tripling of ad revenue.

So I didn't quite follow the logic there. But of course, if you have a free-- let me call it a free speech network platform, clients are very worried about brand safety and having their advertising positioned against controversial content. So it will make advertisers more concerned about a platform that is more open and less controlled or less editorially controlled than it should be.

- That was Sir Martin Sorrell, S4 Capital founder and CEO, with Yahoo Finance's Brian Sozzi at the World Economic Forum in Davos.