Will S&P Addition Give Facebook the Boost it Needs?
Facebook (NASDAQ:FB) got some good news this week, as market onlookers expect the company to be added to the S&P 500, something which would have no shortage of benefits for Mark Zuckerberg’s business. The speculation and positive news follows a leak by the U.K.’s The Guardian over the NSA’s acquisition of user information from the social media giant, as well as other larger internet companies.
After Facebook’s IPO, the share price struggled to stay near its initial mark, quickly falling below $30, and even dipping below $20 last year. This resulted largely from a plethora of insider selling depressing the company’s share price despite strong business metrics. Chief Financial Officer David A. Ebersman, Chief Operating Officer Sheryl Sandberg, Chief Technology Officer Michael T. Schroepfer, and Vice-President and General Counsel Theodore Ullyot have all sold stock over the last two months, and some are owed hundreds of millions more in equity compensation.
Chief Executive Mark Zuckerberg vowed not to sell any of his 60 million shares as the price plummeted, hoping to provide some stability to the volatile price. According to company filings with the U.S. Securities Exchange Commission, he has kept his promise thus far. The stock is currently trading at $24.17.
Being added to the S&P would help lure in investors, with Jordan Rohan, an analyst at Stifel Nicolaus & Co., noted, “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.”
One of the defining features of S&P stocks is profit. Nearly all stocks have reported four consecutive quarters of profit, and Facebook has been beating analyst expectations lately. Company revenue was up to $1.46 billion, beating the estimate of $1.44 billion by analysts.
The hype about joining the S&P comes at a convenient time for Facebook, with The Guardian reporting last week that a program called PRISM, run by the National Security Agency, allowed the U.S. government to acquire user information from major internet companies including Facebook, Google (NASDAQ:GOOG), and Yahoo! (NASDAQ:YHOO).
The companies have since scrambled to maintain credibility, with Google’s Chief Executive Officer and Co-Founder Larry Page indicating that he would pressure the government to disclose more information about surveillance, adding that, “The level of secrecy around the current legal procedures undermines the freedoms we all cherish.”
Congress has begun exploring the PRISM program this week, with Maine Republican Susan Collins feeling slighted in her knowledge of what was happening. Collins, the ranking member on the Homeland Security Committee last year, claims she had no knowledge of the program, though the Obama administration has countered that she could have inquired. Collins pointed out that she couldn’t have asked about something she didn’t know existed.
While the S&P news is great for Facebook, the company will join the other internet giants in protecting its brand and user confidence in their privacy as Congress and the public try to determine the depth of the NSA’s surveillance activities.
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