Facebook Inc. will join the Nasdaq-100 Index next week after the exchange operator shortened its waiting period for inclusion in the gauge, potentially making the stock more attractive to fund managers.
The operator of the social network with more than 1 billion users will replace Infosys Ltd. before the start of trading on December 12, Nasdaq OMX Group said, about seven months after the company’s US$16 billion IPO. The waiting period for entry into the index was a negotiating point with Facebook as it considered listing on Nasdaq or the New York Stock Exchange, a person with knowledge of the matter said in April.
The addition to the index may attract buyers to Facebook amid a 55 per cent rebound from its low three months ago as funds that track the Nasdaq-100 buy the shares. The stock had plunged as much as 53 per cent after selling for US$38 a share in May. The shares recovered after Facebook’s third-quarter sales rose 32 per cent to US$1.26 billion, topping analysts’ estimates, amid a push to boost revenue from advertising on mobile devices.
“Adding Facebook to the index should create some additional demand for shares,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. “But more important in our view is the progress Facebook is making since the summer on mobile and with the ad exchange.”
Gaining entry to gauges tracked by investors is attractive to public companies because it provides a guaranteed shareholder base. Exchange-traded funds and other products linked to the Nasdaq-100 managed about US$49.4 billion at the end of last year, according to data compiled by Nasdaq.
A person with direct knowledge of the matter said April 5 that Facebook decided to list on the Nasdaq Stock Market.
Eight days later, the exchange operator shortened to three months the time a company must be listed on a “recognised market” before becoming eligible for the Nasdaq-100.
It used to be at least two years, or one if a stock would be among the top 25 stocks in the index by market value.
The rule change was implemented on April 23, the day Facebook disclosed in a regulatory filing that it picked Nasdaq over the NYSE.
Facebook’s addition to the Nasdaq-100 was anticipated by investors and the benefits to the share price may be limited, said Josef Schuster, founder of Chicago-based Ipox Schuster, in a phone interview. His firm has about US$2 billion tied to indexes that track IPOs and has held Facebook shares since September.
“It will be supported till December 12 by systematic buying, then after it may give away the short-term gains,” he said. “Facebook has traded pretty strongly over the last five or six weeks and will continue to outperform the Nasdaq-100.
The fact its inclusion is coming up will reinforce its outperformance versus the Nasdaq-100.”
Nasdaq lists eight of the 10 biggest U.S. technology companies by market value, including Apple, Microsoft, Google and Intel. The NYSE is the home venue for International Business Machines, ranked fourth, and Visa, the eighth biggest.
Facebook has a market capitalisation of about US$30 billion according to Nasdaq’s calculations, based on 1.1 billion Class A shares outstanding. That gives it approximately the same market value as DirecTV, which is the 24th biggest company in the Nasdaq-100, according to data compiled by Bloomberg.
Infosys, an India-based consulting firm, became ineligible to remain in the Nasdaq-100 after it decided to move the listing for its American Depositary Shares to NYSE. The company said last week that switching to NYSE Euronext’s Big Board would help it reach European investors. The company will begin trading on the NYSE on December 12.
Nasdaq OMX declined to comment on the change beyond the announcement, and Facebook also declined to comment.
Facebook will also join the Nasdaq-100 Equal Weighted Index and the Nasdaq-100 Technology Sector Index before the start of trading on Dec. 12, Nasdaq said.
Nasdaq flubbed Facebook’s IPO on May 18 when its auction to set the first traded price for the shares failed.
The exchange’s systems were overwhelmed by order updates and cancellations before the stock began trading, causing the market operator to make technology changes that prevented confirmations of orders and trades from being disseminated for hours, leading to confusion among investors, brokers and market makers.