The management at Nasdaq OMX Group Inc. (NASDAQ: NDAQ) must have made a mistake. The trading index company decided to replace highly successful India outsource firm Infosys Ltd. (NASDAQ: INFY) (which is moving to NYSE) with Facebook Inc. (NASDAQ: FB) in its Nasdaq 100 Index. Facebook has been a failure, as far as most investors are concerned, based on both its share price and its financial results. Nasdaq bungled the Facebook initial public offering, which should cause concern that the inclusion of Facebook in the index may be some kind of payback for the disaster.
Facebook has a market cap of $59.5 billion. (Nasdaq made a mistake in the announcement about the Facebook addition to the index when it said the social network’s market cap was $29.7 billion.) Infosys’s market cap is $25.2 billion. That is where any advantage Facebook has ends. There are plenty of companies on the Nasdaq which would fit the bill.
Infosys ,or a company with a similarly long track record, could easily be argued, is the primary outsourcing company in the world, with 153,000 employees doing its work in almost every country in the world. Facebook remains largely a U.S. company with a single product, although the social network has large numbers of members outside America. However, it can hardly call itself international based on its employee locations and its revenue.
Infosys also has posted strong earnings for two decades. The firm was founded in 1981. In its most recently reported quarter, Infosys had revenue of $1.8 billion and a net profit of $431 million. It has, by almost any measure, proven that its business model works and works well.
Facebook can hardly claim that it is the equal of Infosys in financial performance, and investors have struggled to see its prospects as any better in a year than they are today. Facebook had revenue of $1.3 billion in its most recently reported quarter, but lost $59 million. The social network continues to battle to improve advertising revenue, and it has admitted its troubles in making money on mobile devices. Facebook launched a number of new initiatives to prime sales. So far, none has worked. That is why its shares trade just above $27, compared to a post-IPO high of $45. Ultimately, Facebook may be unable to advance its prospects much beyond where they are today.
Nasdaq might believe it owes Facebook for a disastrous IPO, or may believe that the social network has a brighter future than the outsourcing company does or one much better off that Facebook.. In either case, Nasdaq is wrong.
Douglas A. McIntyre