- 1Communication services is a tale of two sectors: high-growth digital media and mature telecom
- 2Digital advertising dominance creates wide moats for the largest platforms
- 3Telecom provides income and stability but limited growth
- 4Our model separates structurally advantaged companies from declining legacy businesses
#Sector Composition
Communication services was restructured in 2018 to include both traditional telecom and interactive media. This creates a bifurcated sector:
Digital Media & Advertising
| Company Type | Revenue Model | Moat Source | Examples |
|---|---|---|---|
| Search/Advertising | Ad revenue, cloud | Data, user habit | Alphabet (Google) |
| Social Media | Ad revenue | Network effects, data | Meta (Facebook) |
| Streaming | Subscriptions | Content library, scale | Netflix, Disney+ |
| Gaming | Sales, subscriptions, digital | IP, community | Electronic Arts, Take-Two |
Traditional Telecom
| Company Type | Revenue Model | Moat Source | Examples |
|---|---|---|---|
| Wireless Carriers | Subscriptions | Spectrum, infrastructure | Verizon, AT&T, T-Mobile |
| Cable/Broadband | Subscriptions | Physical infrastructure | Comcast, Charter |
#Key Metrics
| Metric | Digital Media | Telecom |
|---|---|---|
| Primary Valuation | P/E, EV/EBITDA | EV/EBITDA, Dividend Yield |
| Growth Metric | Revenue growth, user growth | ARPU, subscriber growth |
| Profitability | Operating margin > 25% | EBITDA margin > 35% |
| Key Risk | Regulatory, competition | Capex burden, cord-cutting |
#How Our Model Works Here
Profitability
Digital advertising platforms generate some of the highest margins in the market. Alphabet and Meta consistently score in the top decile for profitability. Telecom companies score moderately.
Momentum
Digital media can be momentum-rich when ad spending is growing. Telecom is typically momentum-neutral — steady but unexciting.
Value
Telecom companies frequently score well on value metrics (low P/E, high dividend yield). Digital media companies are often expensive but may offer value after earnings-driven sell-offs.
Stability
Telecom's recurring revenue model provides high stability scores. Digital media is more volatile due to advertising cycle sensitivity.
#Portfolio Positioning
Communication services serves dual portfolio roles:
- Growth exposure — Through digital media and advertising platforms
- Income and stability — Through telecom carriers
Most investors benefit from owning both sides, weighted toward the higher-quality factor profiles our model identifies.
Last updated: February 10, 2026