After turbulent start Facebook is set for S&P 500
Social media giant cements stock market recovery with entry to index
Social network giant Facebook lost more than half its value in the months after its May 2012 IPO as investors questioned its growth prospects. (Photograph: Justin Sullivan/Getty Images)
Facebook will join the benchmark Standard and Poor’s 500 Index next week, cementing the social-networking company’s recovery from the turbulence that followed last year’s initial public offering.
Facebook will replace Teradyne in the SandP 500 at the close of trading on December 20th, S& P Dow Jones Indices said. The Menlo Park, California-based company will also join the S&P 100 Index in place of Williams Cos. The addition to the benchmark indexes is a vote of confidence in Facebook, which met S&P’s requirements after achieving a year of profitability. The company lost more than half its value in the months after its May 2012 IPO as investors questioned its growth prospects. The stock has soared 86 per cent this year after the company built out its advertising business and mobile promotions, as its more than 1 billion users increasingly log in through smartphones and tablets.
“Including Facebook in the S&P 500 represents that the social network is here to stay and it will remain relevant to users, advertisers and developers for the foreseeable future,” said Jason Benowitz in New York. His firm owns Facebook shares.
“As the company proved it could adapt to mobile and continue to capture users, it also proved that it has staying power.”
Tucker Bounds, a Facebook spokesman, didn’t respond to a request for comment. The company’s shares climbed as much as 4.7 per cent to $51.69 in extended trading following the announcement. They had slipped 1.7 per cent to $49.38 at yesterday’s close in New York.
Facebook’s market value has more than doubled this year to $123 billion. The market capitalisation of Teradyne, a manufacturer of products to test computer chips, is little changed this year at $3.2 billion. Gaining entry to the benchmark gauges provides Facebook with a guaranteed base of shareholders from funds that follow the indexes. More than $5.14 trillion tracks the SandP 500, according to the SandP website. Concern about
Facebook’s ability to serve advertisements to its mobile user base weighed on its shares until the company’s progress this year helped quiet skeptics. Mobile promotions accounted for 49 per cent of total ad revenue in the third quarter, surpassing 41 per cent in the prior period. The mobile user base expanded to 874 million. “There’s a certain degree of establishment that comes with it,” said Daniel Ernst, an analyst at Hudson Square Research who has a hold rating on the stock.
“Facebook is absolutely established, with a billion users worldwide, some of the highest operating margin metrics, and they’re still growing.”
Facebook will be added to the Internet software and services sub-industry index of the S&P 500 along with Google, EBay and Yahoo! It joins almost a dozen other website operators in the benchmark gauge for American equities, among them Google, Yahoo, EBay and Amazon. com Inc. Among social Internet companies that have had IPOs in the past three years such as LinkedIn, Yelp and Twitter, Facebook is the first to make it into the S&P 500.