Profits help Facebook clear bar to S&P membership

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Posted: Monday, November 4, 2013 12:00 am

Facebook Inc.’s fourth straight quarter of positive net income settles one of the final conditions for the 29th-biggest U.S. stock to join the benchmark Standard & Poor’s 500 Index 17 months after its trading debut.

The world’s largest social-networking service reported third-quarter profit of $425 million Wednesday. Shares in the Menlo Park, Calif.-based company fell after its May 2012 initial public offering, finally climbing back above the $38 offer price in July.

Gaining entry to benchmark gauges provides companies with a guaranteed shareholder base from funds that follow the indexes. More than $5.1 trillion tracks the S&P 500, according to the index provider’s website.

With a market value of $122 billion, Facebook is the largest U.S. company not in the index, Bloomberg data show. It could be added as early as this month, according to Stephen Casciano of Credit Suisse Group AG.

“The earnings were definitely the biggest criteria point holding Facebook back from being a top candidate,” Casciano, a New York-based portfolio-strategy analyst at Credit Suisse, said Friday. “S&P’s selection process is subjective, so you can never say with great confidence who will be added to the index, but since they reported positive earnings, it’s now a very good candidate.”

Facebook shares closed at $49.75 Friday. They’ve surged nearly 90 percent this year.

“Facebook satisfies all the criteria,” said Victor Anthony, a New York-based analyst at Topeka Capital Markets Inc. “It meets market cap, liquidity, it’s domiciled in the U.S., public float. Now they’ve met financial viability in terms of GAAP profitability this quarter. The only sticking point is sector classification.”

Facebook would be in the Internet software and services subsector. While technology companies already have the largest representation of any sector, that’s not necessarily a barrier to the addition of another Internet stock, said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.

“The intent is to emulate the full markets,” he said.

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