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Shares in Sorrell's S4 plunge as hiring costs cut earnings outlook

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FILE PHOTO: The Cannes Lions International Festival of Creativity in Cannes
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By Kate Holton

LONDON (Reuters) - Martin Sorrell's digital advertising group S4 Capital lost half its stock market value on Thursday after the costs of rapid hiring forced it to slash its full-year earnings target.

It cut its estimate for full-year core earnings to around 120 million pounds ($144 million) from a market expectation of around 160 million pounds after rapid hiring in the Content division hit first-half earnings.

Sorrell, who built WPP into the world's biggest advertising holding company, launched the digital ad group S4 in 2018, acquiring companies and growing rapidly as it counted Google, Facebook and other tech groups as clients.

But it has hit more turbulent waters this year.

Four months ago the group spooked the market by delaying financial results after the auditor refused to sign off on the accounts. It later published them in early May, pledging to strengthen its financial controls after it discovered weaknesses and a lack of documentation in its content division.

On Thursday shares in the group, which hit a peak of 878 pence in September 2021, fell more than 50% and were trading at 116 pence by 0745 GMT.

Sorrell had argued that S4 - able to analyse data quickly and place targeted ads online - would grow rapidly because it only operated in the faster-growing digital sector and was not held back like legacy agencies that were designed for an era of TV and traditional campaigns.

Analysts at Citi said the new numbers were consistent with an around 30% downgrade to consensus earnings.

"While there are good arguments around why this is likely to be temporary - essentially the downgrade is driven by investment in headcount which is essential to deliver growth (which is still on track) - this will likely cause consternation," they said.

S4 maintained its target for 25% like-for-like gross profit after meeting first-half expectations.

($1 = 0.8338 pounds)

(Reporting by Kate Holton; editing by James Davey, Elaine Hardcastle)

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