Communication Services Sector Overview Brooks

Transcript:Communication Services Sector Overview Brooks:
Communication Services Sector Overview Brooks Reiber and Jack Reagan Table of Contents Industry Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendation Industry Overview Sector Description YTD Sector Performance Key Players Sources: Bloomberg (as of 10/27/22), Company Websites, Standard and Poor’s Sector Size The Communications Services Sector contains companies within the following industries Telecommunications Media & Entertainment The sector formed in 2018 as a combination of the Telecom industry and companies in the consumer discretionary and information technology sectors (39.96%) Industry Overview Top Index Holdings(1) Sources: State Street (as of 10/27/22) XLC Holdings Industry Overview Sector Breakdown Sources: Fidelity (as of 10/27/22) Industry Overview High-Level Sector Traits Telecom Highly levered Low growth Healthy dividends Low competition Media & Entertainment High growth Asset-light Innovation Highly competitive Industry Life Cycle Analysis Business Analysis Sources: Company Websites Business Cycle Analysis Business Analysis Sources: State Street Business Analysis Business Analysis Sources: dentsu (2022) Share of Global Advertise Spend by Medium Business Analysis Sources: Statista (2022) Number of People Using Social Media Platforms Business Analysis Sources: Statista (2022) Overview: Sector consists of mix of growth (Media & Entertainment) and mature (Telecom) companies Extremely competitive industry, suppliers focused on consumer loyalty by improving product offerings; consumers hold buying power Business Models: Driven from advertisement revenue and the number of monthly active users (MAUs) MAUs have increased dramatically over the last decade, the total share of advertisement spending has increasingly shifted to digital platforms Business Cycle: Recessionary forces weighing on consumer are hurting companies' abilities to generate revenue through advertisements Weak consumers may choose to unsubscribe during these periods as services are non-essential Business Analysis Key Takeaways Economic Analysis Correlation to Consumer Spending Sources: Bloomberg (as of 10/27/22) Economic Analysis Correlation to Fed Funds Rate Sources: Bloomberg (as of 10/27/22) Financial Analysis EPS Expectations Sources: Bloomberg (as of 10/27/22) Today Financial Analysis Sources: Bloomberg (as of 10/27/22) Margins Financial Analysis The sector has stabilized its volatile earnings since the reshuffle in 2018 Analysts expect future EPS growth as technology offering expands and further globalizes Net Margins have remained steady through recent volatile markets Slight correlation between the sector’s performance and consumer spending due to both factors’ connection to advertising spending However, consumer spending is also correlated to broader market performance, so this is not surprising Negative correlation with Fed Funds Rate Leading to strong dollar which hurts companies that seek revenue from abroad Key Takeaways Valuation