Stocks ended the third quarter at 2022 lows, and no sector contributed more to the period's decline than Communications stocks, adding on to a terrible 2022 with a double-digit drop for the three-month span.
The S&P 500 index fell 5.3% during Q3, and Communication Services was the worst performer of the index's 11 sectors, tumbling a full 12.9%. The big-company-weighted Communication Services Select Sector SPDR Fund (XLC) declined 11.8% for the quarter.
The first half of 2022 in the sector was a story of sliding hopes for Internet content and information stocks, with some emphatic losses for well-known names including Snap (SNAP), Netflix (NASDAQ:NFLX), Sea Limited (SE), Twilio (TWLO), Roblox (RBLX), Roku (ROKU), Spotify (SPOT), Meta Platforms (META) and Pinterest (NYSE:PINS).
If the "ad recession" defined first-half fortunes in the space, the third quarter may be the time that the bell tolled for broadband growth. Cablecos took hits as analysts hustled to pull back deployment projections, and the broadband sector was well represented in Q3's losers.
The worst performing stock among the entire S&P 500 was Charter Communications (CHTR), down 36.9% over the three months, and its slide accelerated in the past month. In fact, since just last week - when the company was on the receiving end of a $1.15B penalty in a Texas murder case, and Tom Rutledge announced his transition out of the CEO spot - the stock is down about 18.5%.
As for the quarter's top performers, it was redemption time for those who bought some Internet dips as the calendar turned to July. Netflix (NFLX) was the large-cap leader, rising 30.8%, followed by Pinterest (PINS), up 24.5%, and Twitter (TWTR), up 14.7% amid some Elon Musk trial drama.
Looking ahead to Q4, some of the sector's media companies are ready to turn the page. Disney (DIS) in particular is looking to remedy a content void that showed up spurred by COVID-19 disruption, when a heavy program investment comes through the pipe with a big slate of new content (with an emphasis on streaming) for the fourth quarter and into 2023.
Warner Bros. Discovery (WBD) has lost more than half its value since the formation of the new company from Discovery and WarnerMedia, having chosen to take some hard medicine early with aggressive cost-cutting, layoffs and project cuts. The company says it's achieved a big chunk of its goal to realize $3B in run-rate synergies from its deal, and scaled back estimates in its "kitchen sink" quarter. Now having reset expectations, it just needs to work to surpass those lower bars.
The five top performers for the third quarter among large-cap Communication Services stocks and larger ($10B market cap or more):
- Netflix (NFLX), +30.8%;
- Pinterest (PINS), +24.5%;
- Twitter (TWTR), +14.7%;
- Liberty Braves Group Series C (BATRK), +11.8%
- Liberty Braves Group Series A (BATRA), +9.1%.
The five worst performers for the third quarter among large-cap Communication Services stocks and larger ($10B market cap or more):
- Liberty Broadband Series C (LBRDK), -38.1%;
- Telefonica (TEF), -37%;
- Charter Communications (CHTR), -36.9%;
- Liberty Broadband Series A (LBRDA), -36.3%;
- Match Group (MTCH), -33.2%.
And while Netflix (NFLX), Pinterest (PINS) and Twitter (TWTR) definitely cut their 2022 losses in the third quarter, they still had a huge hole to dig out of to pare year-to-date losses. So far in 2022, only three large-cap Communication Services stocks are in positive ground, and one of them just barely ...
Year-to-date gainers for large-cap Communication Services stocks and larger ($10B market cap or more):
The five worst performers so far in 2022 among large-cap Communication Services stocks and larger ($10B market cap or more):