Facebook Inc. (NASDAQ:FB) rose as much as 4.1% following an announcement that it will join the benchmark Standard & Poor’s 500 Index next week, cementing the social-networking company’s recovery from the turbulence that surrounded its initial public offering last year.
The stock rose as high as $51.42 and was up 3.6% to $51.15 as of 10:03 a.m. in New York. Facebook will replace Teradyne Inc. in the S&P 500 at the close of trading on Dec. 20, S&P Dow Jones Indices said in a statement yesterday. 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% 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, who helps manage about $4.5 billion of assets at Roosevelt Investment Group Inc. 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.
Facebook’s market value has more than doubled this year to $123 billion. The market capitalization 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 S&P 500, according to the S&P 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% of total ad revenue in the third quarter, surpassing 41% 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 Inc., EBay Inc. and Yahoo! Inc. 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 Corp., Yelp Inc. and Twitter Inc., Facebook is the first to make it into the S&P 500.
About 19 months after its IPO, Facebook is already a member of the Russell 1000 Index and the MSCI World Index. It joined the Nasdaq-100 Index in December 2012 after the exchange operator cut its usual waiting period as part of negotiations that led to Facebook choosing to list on the Nasdaq Stock Market rather than the New York Stock Exchange.
Alliance Data Systems Corp. and Mohawk Industries Inc. will also join the S&P 500, replacing Abercrombie & Fitch Co. and JDS Uniphase Corp., S&P Dow Jones said yesterday.