As Monsanto exits the S&P 500 due to its buyout from Bayer, Twitter Inc. (NYSE: TWTR) will replace it. In a sense, Twitter has earned the reward of a spot in what may be the most widely traded index in the world. Its financial performance has been a disaster, but its share price is up sharply in the past two years.
Twitter currently trades near $39, which is up 170% from two years ago. The S&P 500 is up 31% for the same period. The stock’s performance over a five-year period is much worse. However, the recent run has taken the company’s market capitalization to $28 billion, almost as much as Fiat Chrysler’s. Of course, investors believe Twitter’s growth will outpace the car company’s by a wide margin.
The selection of Twitter was announced by S&P Dow Jones Indices, which makes these decisions.
Twitter’s numbers in the most recently reported quarter were good but not spectacular. Revenue rose to $665 million. Twitter made a profit of $61 million, compared to a loss of $62 million a year ago. Investors were upset by Twitter’s monthly active user growth. The figure rose from 330 million in the fourth quarter of last year to just 336 million in the first quarter of 2018.
Twitter’s numbers get compared to Facebook Inc.’s (NASDAQ: FB), which may not be fair, but it is the case nevertheless. Many people skeptical about Twitter’s future say its growth period is completely over. They also say that advertisers will never flock to Twitter but will use Google, Facebook and more traditional media. Twitter’s recent performance has not proven them wrong.
The S&P 500 does include scores of underperforming companies, ranging from manufacturers and retailers to tech companies and other social media. Twitter did not get added to the S&P 500 for its performance. Someone at S&P Dow Jones Indices needed to make a decision, and Twitter drew the right straw.