Shares of ride-hailing app Uber reached a new 52-week high last week as the San Francisco-based firm prepares to make its S&P 500 debut in Monday trading.
“Super proud of the Uber team for S&P 500 inclusion,” wrote CEO Dara Khosrowshahi on X. “Great way to head into the weekend and get back to building on Monday!
The addition isn’t a huge surprise. The company is worth about $127 billion, making it the largest US company not currently in the index.
It’s been a good year for both Khosrowshahi and Uber. The company has had regulatory wins in both the US and UK, has reported strong quarterly earnings and record ridership and its stock is up more than 150% so far in 2023
Not all that long ago the company was treading on thin ice. Its leadership was under fire and cities and taxi unions were fighting to block its services. The company was unprofitable and its stock fell by about 52% in 2022.
Uber’s addition to the S&P 500, which rebalances quarterly, is a significant achievement for the ride-sharing giant. A company has to fulfill various criteria to be added to the index (which is tracked by funds worth trillions of dollars), highlighting Uber’s expanding influence and market stability and cementing its status as a major player in the market.
But the impact of Uber’s inclusion extends well beyond Wall Street. That’s because many people’s retirement accounts (like 401(k)s, personal investment portfolios, and IRAs) are tied to funds that track the S&P 500.
When a company like Uber joins the index, these funds and portfolios automatically buy its stock, potentially driving up the stock price.
The company’s stock has already gained about 10% since Dec. 4, when the S&P Dow Jones Indices first announced that Uber would be added to the benchmark index. Shares of the stock now sit just under their all-time high, reached nearly two years ago in February 2021.
The S&P 500, which represents 500 of the largest companies in the stock market, typically rebalances once each quarter — in March, June, September and December. These changes are meant to ensure that the index remains an accurate representation of the US market as a whole.
Sometimes, they might also rebalance the index for unexpected reasons, like when companies merge or are acquired.
Typically, a committee at S&P Dow Jones Indices evaluates companies using specific criteria like market capitalization, corporate earnings and liquidity. Companies that no longer meet those criteria are removed, while those that now meet the criteria are added.
During this rebalance, Uber, Jabil and Builders FirstSource will be added to the S&P 500 while Sealed Air, Alaska Air and SolarEdge Technologies will lose their spots.
A rebalance like this one is typically what’s called a major liquidity event, meaning a lot of money moves around in the stock market when it happens. Standard & Poor’s estimates that about $13 trillion is tied to the S&P 500. That’s a big deal, especially during the final weeks of the year, when traders leave for the holidays and volume tends to drop.
Read the full article here