Communications stocks continue to have a difficult run. Over five years, the S&P 500 Communication Services index has gained 39%. That compares with a 70% gain in the Nasdaq index during the same time period. Telecommunications companies and those focused on enabling voice, video and text communications continue to be saddled with high infrastructure costs and a slowdown in spending by both corporate and individual customers. While some winners have emerged in the sector, many companies continue to struggle. That fact is reflected in their slumping share prices. High inflation and elevated interest rates used to tame the sector haven’t helped matters. With no turnaround in sight, we offer the following ticking time bombs: Three communications stocks to dump before the damage is done.
Rogers Communications (RCI)
Rogers Communications (NYSE:RCI), the Canadian telecommunications company, is currently restructuring its debt after spending 26 billion CAD to acquire former rival Shaw Communications. The deal left Rogers saddled with debt, along with onerous restrictions on its business imposed by regulators as a condition of approving the takeover. Those requirements include creating 3,000 new jobs and maintaining them for 10 years, as well as the liability to lay off any staff.
Rogers recently blamed the acquisition for the fact that its second-quarter profit fell 73% to 109 million CAD. The costs involved in the Shaw Communications purchase will likely weigh on RCI stock for the foreseeable future. Beyond the cumbersome acquisition, Rogers is also embroiled in a nasty wrongful dismissal lawsuit brought by former CEO Joe Natale, who is seeking 24 million CAD in damages from the company. Rogers’ stock is down 17% this year and has declined 25% over five years.
The stock of Twilio (NYSE:TWLO) continues to be a disappointment. The company, whose technology enables both phone calls and text messaging, has seen its share price decline 18% over the last 12 months and fall 24% over five years. Twilio’s woes stem from a slowdown among its corporate clients, particularly in social media, e-commerce and cryptocurrency. Company executives said customers have become more budget-conscious this year amid growing concerns about an economic slowdown.
Trends show a steady erosion in revenue growth. In 2022, Twilio’s revenue growth slowed from a 61% increase in 2021 to 35%. Q2 2023 revenue, however, increased by 10% year-over-year (YoY). Still, the numbers and share price performance don’t inspire confidence. Twilio forecast that its third-quarter revenue growth this year will be flat. In response to its slumping business, Twilio undertook aggressive cost-cutting measures with a goal of reaching profitability by 2027. It could be a case of too little, too late.
Has AT&T (NYSE:T) stock become a value trap? It certainly appears that way, with the telecommunications company’s stock down 20% this year and down 42% over the last five years. Not even a dividend that yields more than 7% has been enough to entice investors to take a stake in T stock. Things were supposed to turn around for AT&T and its long-suffering shareholders after the company spun off all its media assets and focused exclusively on its wireless internet business. But it hasn’t turned out that way.
Despite the fact that AT&T is the world’s biggest telecommunications company and largest provider of mobile telephone services in the U.S., its stock continues to underperform. A big issue remains the company’s debt load, which currently stands at around $169 billion. Another issue is the quarterly dividend, which the company cut by nearly half to 28 cents a share in 2021, angering some shareholders and making investors generally skeptical of the distribution and company.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.