Future of Facebook (and Social Networks)

Throughout these few weeks, I’ve looked at the current status (haha) of Facebook and how developments affect the company’s potential. Now, I’m going to take a look at the future of the company as a whole. Let’s start with an investigation of its inclusion in the NASDAQ-100. The NASDAQ-100 is a stock market index of the top hundred non-financial companies listed on the NASDAQ stock exchange. Stock market indexes are used by financial companies to gauge markets and various companies, so joining the ranks of companies like Google, Yahoo, Apple, and Microsoft definitely will help draw in more investors. This also helps because people who trade large volumes of money called exchange-traded funds have benchmarks they must meet, and that tends to make them buy stock from all companies (now Facebook included) in an index to match the index’s performance.

Why isn’t this huge news and why haven’t Facebook popped the champagne? First of all, this has been long expected. Also, Facebook only joined the index now because Infosys (the company it replaced) moved to the New York Stock Exchange, making it ineligible for inclusion in NASDAQ’s NASDAQ-100. Otherwise, the inclusion would’ve been postponed until the next reassessment of NASDAQ companies. A big next step would be to be included in the S&P 500, a more influential index that draws more interest, attention, and cash flow in the form of stock buyers. Still, joining the S&P is difficult as it requires several quarters of profits, and Facebook has gone positive only two quarters so far. A single slip would render Facebook ineligible. Overall, even though the addition to NASDAQ-100 isn’t the most shocking news in the financial world, it does give Facebook the potential to add a nice boost in terms of long-term safety and to regain some value ever since its stock went sub $20 a few months ago.

Still, this places pressure on Facebook. If Facebook underperforms consistently or has a major slip, investors will flee. Facebook stock is tentatively climbing up, but investors are just waiting for any signs of long-term problems for a hefty jumping of ship. Major issues such as privacy and mobile expansion are topics that investors pay much attention to while considering Facebook, and at the moment, Facebook has placated doubts. Unfortunately, if Facebook is unable to continue to draw advertisers for its mobile ads or if it has one major privacy slip (such as leakage of account info, a large-scale hack, or a security breach), the future of social networks as a whole (financially, at least) is jeopardized, and the decline of the Facebook stock would make the Dow Jones fall of 2008 look like nothing.

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