Facebook Inc (NASDAQ:FB) shares are up this morning as investors cheered the news of its addition to the U.S. major benchmark S&P 500. Three companies will be removed from the 500 stock benchmark, making room for a new trio.
The spotlight will be on the fast growing Facebook (FB) which will replace Teradyne (TER) at the close on December 20. The other two changes in the S&P 500 benchmark include the replacement of Abercrombie & Fitch (ANF) and JDS Uniphase (JDSU) with Alliance Data Systems (ADS) and Mohawk Industries (MHK).
FB will also replace The Williams Inc. (WMB) in the S&P 100 index of large U.S. companies.
Facebook Addition: A Bull Run
Facebook’s addition came as no surprise as the social media giant has given a stellar performance over the past couple of months, leading to a surge in its market capitalization. (read:Is the Social Media ETF Losing Its Luster?).
The market value of FB was $121.2 billion at close yesterday. This is much higher than some of the Dow components – $99.6 billion for Boeing (BA), $99.7 billion for United Technologies (UTX) and $94.8 billion for McDonalds (MCD).
The move follows the company’s profitable results for the fourth consecutive quarter, one of the major criteria to be eligible for the S&P 500 index. Facebook also serves the other requirements of market capitalization, liquidity and trading availability for at least six months after its debut. The ongoing boom in the Internet space and the skyrocketing prices of social media stocks has been an added advantage for Facebook’s addition.
Facebook will make its entry into the S&P 500 in less than two years of its IPO, which is almost the same period when Google (GOOG) joined the benchmark. However, Facebook edged past most of the big tech names like Amazon (AMZN), eBay (EBAY) and Yahoo (YHOO) that took over three years to join the S&P 500.
Thus, we see this as a clear victory for Facebook, which was struggling with technical glitches and plunging stock prices following its 2012 IPO. This will provide a big boost to the company’s growth prospects and is suggestive of solid trading ahead for the stock (read: 3 ETFs with the Most Facebook Exposure in Focus).
Immediately following the announcement, shares of FB jumped 4% in after-market hours trading yesterday. The shares are up 86% year-to-date.