Facebook rises as S&P 500 inclusion seen

Facebook Inc. gained as much as 5.6% amid speculation that the world’s largest social network may be added to the Standard & Poor’s 500 Index.

The shares rose 4.2% to $24.27 at 2:25 p.m. in New York, and earlier touched $24.60 for the biggest intraday gain since May 30. Before today, Facebook had dropped 39% since an initial public offering in May 2012.

With a current market value of almost $60 billion, Menlo Park, California-based Facebook is likely to join the S&P in the next year, according to Jordan Rohan, an analyst at Stifel Nicolaus & Co. The timeline could follow that of Google Inc., which was added to index about 18 months after its public market debut in August 2004, he said.

“Inclusion in a major index would significantly broaden Facebook’s investor base, providing added liquidity and price support, and the addition would likely cause a near-term pop in the share price,” Rohan wrote in a research report. He upgraded the shares to buy with a $29 target price.

Already, Facebook’s market value exceeds that of several Internet companies in the S&P, including Yahoo! Inc., Priceline.com Inc. and Expedia Inc. At current levels, Facebook would be the 59th most valuable member of the index, Rohan said.

Ashley Zandy, a spokeswoman for Facebook, declined to comment on whether the stock would be added to the index, as did Soogyung Cho, a spokeswoman for S&P Dow Jones Indices. Facebook is a member of the of the Nasdaq 100 Index and the Russell 1000 Index.

Profit Guidelines

The most important factor in Facebook joining the S&P 500 is whether the sub-sector of social media needs to be better represented, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

“The intent of the index is that it represents the U.S. domestic large-cap market,” New York-based Silverblatt said in a telephone interview.

While companies added to the S&P 500 have typically reported four straight quarters of profit, Berkshire Hathaway Inc. was an exception to that guideline when it was included in the benchmark measure in February 2010, Silverblatt said. Facebook has posted only two consecutive quarters of net income.

Still, Facebook reported first-quarter sales that topped estimates, a sign that Chief Executive Officer Mark Zuckerberg is gaining ground in his effort to make more money from mobile advertising. Revenue for the period rose 38% to $1.46 billion, topping analysts’ average estimate of $1.44 billion, according to data compiled by Bloomberg.

Facebook Exchange

Mobile made up about 30% of advertising revenue in the first quarter, expanding from 23% in the previous period.

Zuckerberg is also bolstering sales of desktop-based promotions with recent changes to Facebook Exchange, a service that lets advertisers target users based on their Web-browsing history, according to Doug Anmuth, an analyst at JPMorgan Chase & Co. He raised his 2013 revenue projection to $6.53 billion from $6.4 billion, while maintaining an overweight rating on the shares and $35 target price.

In March, the company introduced changes to Facebook Exchange that allowed ads to be placed in the main desktop News Feed, where members see postings from friends and brands they follow. Before, such adds could only be placed along the right- hand side of home pages for desktop users.

Facebook also had benefited from increased spending from large advertisers such as McDonald’s Corp. and Procter & Gamble Co., Anmuth said.

“Advertiser quality has improved,” Anmuth wrote in a research report. “We’re seeing stronger branded presence in the News Feed than we’ve seen at any point in the past year.”


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