Uber’s shares experienced a significant boost, rising by 5% in extended trading, following the announcement that it will be added to the prestigious S&P 500 Index. This change is set to take place before trading opens on Monday, December 18. Becoming a part of the S&P 500 often leads to a surge in stock price, as fund managers are required to acquire shares.
This development comes at a critical time for Uber, as it has faced financial challenges in the past. The company had been burning cash due to competitive driver pay, but its delivery business turned profitable much quicker than anticipated. In a bid to improve its cost structure, Uber had to make some tough decisions, including eliminating 3,500 jobs in 2020.
However, recent financial reports show positive strides for Uber. In the third quarter, the company recorded a net income of $221 million on a substantial $9.29 billion in revenue. This welcome profitability has solidified Uber CEO Dara Khosrowshahi’s vision to build a company that can compound top-line rates and improve margins over time.
Uber’s inclusion in the S&P 500 Index is no small feat. Eligibility for S&P’s rules requires positive earnings in the most recent quarter and over the prior four quarters, with an adjusted market capitalization of at least $14.5 billion. With a market cap of about $118 billion, Uber far surpasses these criteria. Additionally, when comparing Uber’s market cap to the median market cap of companies already in the S&P 500, which is just over $31 billion, it is evident that Uber’s size and influence in the industry cannot be ignored.
As the market anticipates Uber’s inclusion in the S&P 500 Index, stakeholders and investors are maintaining optimistic sentiments. This move signifies a significant achievement for Uber and further solidifies its position in the market. The rise in stock price following this announcement highlights the confidence investors have in the future prospects of the ride-hailing giant.
