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Communication Services

Communication Services Historical Performance: 2018–2024

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What Does Communication Services Sector History Reveal?

The Communication Services sector's investment history is essentially a tale of two sectors coexisting within one classification — the legacy telecommunications sector's multi-decade underperformance against the market, and the extraordinary growth and volatility of internet platforms that were added in the 2018 GICS restructuring. Because the modern Communication Services sector has existed only since September 2018, its performance history is limited, but the 2018–2024 period contains multiple complete cycles that reveal how the sector's diverse components behave across different economic and market environments. Understanding this compressed history — and the pre-2018 history of its component subsectors — provides essential context for current allocation decisions.

Quick definition: Communication Services historical performance documents sector returns since the 2018 GICS restructuring, with key lessons from the 2020 pandemic surge, the 2022 advertising and rate-driven bear market, and the 2023 recovery dominated by Meta's extraordinary rebound — illustrating the sector's volatility and internal subsector divergence.

Key takeaways​

  • The Communication Services sector (XLC) has underperformed the S&P 500 since its 2018 inception on a cumulative total return basis, primarily due to the 2022 bear market
  • The sector's 2022 performance (-40%) was among the worst of any S&P 500 sector — driven by advertising cycle weakness, rate hikes, and Meta's specific challenges
  • The 2023 recovery (+55%) was among the best of any S&P 500 sector — driven almost entirely by Meta's 194% appreciation
  • Telecom carriers have chronically underperformed the S&P 500 on total return (price plus dividends) since 2010 as wireline revenue declined and wireless markets matured
  • Internet platforms (Alphabet, Meta) drive essentially all of the Communication Services sector's meaningful outperformance or underperformance versus the S&P 500

Pre-2018: the old Telecommunications sector​

Before September 2018, the sector was called "Telecommunications Services" and consisted primarily of AT&T, Verizon, and a smaller set of wireline and wireless carriers. The pre-2018 sector was:

  • Dividend-oriented: Investors owned the sector for income, not growth. AT&T and Verizon collectively represented 60–70% of the sector.
  • Underperforming: The telecom sector underperformed the S&P 500 on total return basis from 2010 through 2018, as wireline revenue declined faster than wireless revenue grew and competitive pricing pressured ARPU.
  • Defensive in recessions: During the 2008–2009 financial crisis, telecom declined less than the S&P 500 — wireless subscription revenue held up better than discretionary consumer spending.
  • Rate-sensitive: Rising rate environments (like 2013 taper tantrum, 2018 rate hikes) produced telecom underperformance as yield competition increased.

The 2018 restructuring: a new sector identity​

The September 2018 GICS restructuring moved Alphabet, Meta, Netflix, and major media companies into the sector. This reshaping:

  • Increased growth exposure dramatically (Alphabet and Meta had been double-digit revenue growers)
  • Reduced the dividend yield character (internet platforms pay little or no dividends)
  • Increased volatility (internet platforms had higher beta than telecom carriers)
  • Made the sector more cyclically sensitive to advertising markets

In the immediate post-restructuring period (Q4 2018), the newly constituted sector declined sharply alongside technology stocks — demonstrating that the internet platform addition had changed the sector's behavior.

2019–2021: pandemic and the digital advertising boom​

The 2019–2021 period was generally positive for the Communication Services sector, driven by internet platform performance:

2019: The sector recovered from Q4 2018 losses alongside technology broadly. Alphabet and Meta both delivered strong advertising revenue growth. XLC gained approximately 32%.

2020: COVID-19 created a pandemic-driven demand surge for digital connectivity and advertising. As physical retail advertising declined, e-commerce advertising exploded — Facebook and Google benefited from advertisers shifting budgets to digital. The sector gained approximately 23% in 2020, though with significant volatility (March 2020 COVID crash followed by sharp recovery).

2021: Digital advertising spending reached extraordinary levels driven by post-pandemic e-commerce investment and elevated marketing budgets. Meta and Alphabet both grew advertising revenue at accelerating rates in 2021. XLC gained approximately 21%.

Decision tree​

2022: the worst year in sector history​

Calendar year 2022 was the Communication Services sector's most painful year since the current classification began — XLC fell approximately 40%, making it one of the worst-performing S&P 500 sectors. The drivers were multiple and overlapping:

Advertising market deceleration: Digital advertising growth slowed sharply in H2 2022 as macroeconomic uncertainty caused advertiser budget pullbacks. Alphabet's Q3 2022 YouTube advertising revenue declined year-over-year for the first time — a historically unprecedented negative.

Meta's specific challenges: Meta faced simultaneous headwinds — iOS ATT privacy impacts (estimated $10 billion in lost 2022 revenue), TikTok competition, and continued Reality Labs losses ($13.7 billion in 2022 operating losses). Meta fell approximately 64% in 2022 — the largest contributor to XLC's sector decline.

Interest rate headwinds: The Federal Reserve's aggressive rate hiking cycle compressed growth stock valuations through DCF discount rate effects, disproportionately affecting Alphabet and Meta's premium multiples.

Netflix subscriber slowdown: Netflix's disclosure in Q1 2022 of its first subscriber count decline in a decade triggered a 35% single-day stock decline and broader streaming sector pessimism.

Telecom relative strength: AT&T and Verizon declined less than Alphabet and Meta in 2022 — their defensive characteristics provided relative stability. T-Mobile fell less than Meta but more than the broad S&P 500 due to its higher-multiple growth positioning.

2023: Meta's extraordinary recovery​

The Communication Services sector's 2023 performance (+55% for XLC) was almost entirely attributable to Meta's recovery from its 2022 lows. Meta appreciated approximately 194% in 2023 — one of the largest single-year gains by a mega-cap company in market history.

The drivers of Meta's recovery were:

  • Advertising market normalization (digital advertising returned to growth as economic conditions stabilized)
  • "Year of Efficiency" margin improvement (headcount reduction from 87,000 to under 70,000)
  • AI-driven advertising efficiency improvements (Advantage+ campaigns improving advertiser ROI)
  • Reels monetization progress (short-form video ad revenue growing toward Instagram feed parity)
  • Analyst and investor sentiment normalization (excessive 2022 pessimism reversed)

Alphabet also appreciated significantly in 2023 (+58%), driven by Google Cloud profitability improvement and search advertising recovery. Netflix recovered as password-sharing monetization added subscriber revenue. The broad sector recovery in 2023 demonstrated the cyclical rather than structural nature of 2022's advertising downturn.

Cumulative performance since 2018: mixed picture​

Despite the strong 2023 recovery, XLC's cumulative performance since its September 2018 inception has underperformed the S&P 500 on most multi-year measurement periods — primarily because 2022's -40% decline required subsequent extraordinary gains merely to restore prior levels.

This underperformance is concentrated in the advertising cycle companies (Alphabet and Meta) rather than telecom carriers, which have consistently underperformed regardless of the restructuring. The fundamental lesson: Communication Services sector performance is essentially internet advertising cycle performance, and telecom carrier performance represents a persistent drag that reduces the sector's attractiveness relative to pure-play internet platform exposure.

Comparing subsector performance​

The subsector performance divergence within Communication Services is dramatic:

Internet platforms (2018–2024): Highly volatile, with extraordinary gains in 2019, 2020, 2021, devastating losses in 2022, and sharp recovery in 2023–2024. Long-run compounders for patient investors who held through cycles.

Telecom carriers (2018–2024): Modest single-digit or negative total returns. AT&T's dividend cut in 2022 produced a negative total return despite the high starting dividend yield. Verizon's total return was close to zero over the period. T-Mobile was the clear outperformer within telecom, driven by post-Sprint merger execution.

Media companies (2018–2024): Negative-to-modest returns for most traditional media conglomerates. Disney fell from approximately $150 to $85–95 over the 2018–2024 period as streaming transition costs weighed on profitability. Netflix recovered from a 2022 downturn to new highs. Warner Bros. Discovery, formed from AT&T's WarnerMedia spin-off and Discovery merger, has been a significant value destruction case.

Common mistakes​

Using pre-2018 Communication Services performance data for current sector analysis. The pre-2018 "Telecommunications sector" was primarily AT&T and Verizon — a fundamentally different composition with different performance characteristics. Using its historical data to inform expectations for the current Communication Services sector (now dominated by internet platforms) produces misleading conclusions.

Extrapolating Meta's 2023 recovery indefinitely. Meta's 194% 2023 gain was exceptional — driven by a confluence of business improvement, margin expansion, and sentiment normalization from an oversold 2022 position. Similar gains are not a reasonable expectation going forward; mean reversion from extreme undervaluation to fair value is a one-time phenomenon.

FAQ​

How has the Communication Services sector performed relative to the S&P 500 since 2018?​

From XLC's September 2018 inception through 2024, the Communication Services sector has underperformed the S&P 500 total return on most measurement periods, primarily due to the severity of the 2022 bear market. Performance varies significantly by period: 2023 saw substantial outperformance driven by Meta and Alphabet; 2022 saw severe underperformance. Current and historical performance data are available from ETF providers and at sec.gov through XLC's regulatory filings.

Which Communication Services companies have the best long-run track records?​

Alphabet (since 2004 IPO) has delivered exceptional long-run returns, growing from approximately $85 (adjusted) to $170+ per share through multiple complete cycles. Meta (since 2012 IPO at $38) has also delivered strong long-run returns despite significant volatility. T-Mobile has significantly outperformed telecom peers since 2013. Legacy telecom (AT&T, Verizon) has underperformed the market on total return for most 5–10 year periods.

Summary​

Communication Services sector historical performance since the 2018 GICS restructuring demonstrates the sector's fundamental character: extraordinary internet platform growth and volatility that dominates sector returns, combined with chronic telecom underperformance that acts as a persistent return drag. The 2022 sector decline (-40%) and 2023 recovery (+55%) illustrated both the cyclicality of advertising-dependent businesses and the resilience of network effect moats that allowed Meta and Alphabet to recover from severe drawdowns. Investors who understand that Communication Services sector performance is primarily internet advertising cycle performance — not a diversified sector with stable defensive characteristics — will calibrate their expectations and position sizes more accurately than those who treat the sector's heterogeneous classification as implying diversification it does not provide.

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