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On Jan 2, Zacks Investment Research downgraded WPP plc (WPPGY - Analyst Report) to a Zacks Rank #2 (Buy) from a Zacks Rank #1 (Strong Buy). Although the company’s acquisitions look favorable, we are worried about the foreign currency exposure and stiff competition from other players in the market.

Why the Downgrade?

WPP has been growing substantially in the past quarters. However, the organic growth has been a rare show by the company. WPP follows the strategy of growing through acquisitions and has been aptly doing so. During the first nine months of 2013, WPP completed 45 acquisitions. These strategic acquisitions give the company a major competitive edge and enhance its creative reputation and co-operation among the group companies.

Subsequent to the third quarter of 2013, the company has gone for further acquisitions in regions including Philippines, Russia, Ukraine, Vietnam, India, UK, South Africa, Turkey, to name a few.

In the third quarter of 2013, the company’s revenues grew 7.4% year over year to £2,680 million ($4,152.4 million), with 1.4% contribution from the acquisitions. The company won net new business of $3.716 billion during the third quarter of 2013, compared with $1.415 billion in the prior-year quarter.

WPP is one of the largest advertising companies in the world and is a significant player in the U.S. The primary focus of the company is to grow its revenues and gross margin at a faster rate than the industry average. WPP expects to achieve it by its market-leading position in the new markets, in new media, and in consumer insight.

However, the company’s international operations are exposed to economic uncertainties and risks from local legislation and unstable political conditions.

Other Stocks to Consider

WPP currently has a market capitalization of $28.5 billion. Other stocks worth a watch in the industry include SouFun Holdings Ltd. (SFUN - Snapshot Report), YuMe, Inc. (YUME - Snapshot Report) and Competitive Technologies Inc. (CTTC). While SouFun Holdings carries a Zacks Rank #1, YuMe and Competitive Technologies hold a Zacks Rank #2.

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