Google Inc.’s shares surged 7 percent Friday as Wall Street reacted to the company’s impending addition to the Standard & Poor’s 500 index — a milestone that gives another reason to scrutinize the online search engine leader’s already closely watched stock.
S&P announced its decision to include Google in the influential index late Thursday, snapping the company’s stock out of its recent doldrums.
Google’s shares soared $23.91 to close at $365.80 on the Nasdaq Stock Market.
The Mountain View, Calif.-based company will join the S&P 500 March 31, replacing Burlington Resources Inc. That Houston-based oil producer is being bought by ConocoPhillips Inc. in a deal worth about $35.6 billion.
Google’s admission into the elite club isn’t a surprise because its whirlwind success and market value had already made clear that it belonged.
“It hasn’t been a question of if, only when” Google would become an S&P 500 member, said David Garrity, director of research for Hapoalim Securities.
The inclusion into the S&P 500 provides Google’s stock with an immediate catalyst because so many large mutual funds are based on the index’s composition. Once a stock is added to the index, money managers typically must buy shares as they readjust their portfolios.
What’s more, some conservatively managed funds are permitted to invest only in companies that belong to the S&P 500, so Thursday’s move will make Google’s stock available to a larger pool of investors.
Now that Google will be in the S&P 500, Garrity thinks some investors who couldn’t previously buy Google’s shares might decide to sell some of their stock in Yahoo Inc. — another Internet icon that is already in the index.
“Some of the benefit that Google gets from being in the S&P could come at Yahoo’s expense,” Garrity said.
Yahoo’s shares slipped 6 cents Friday to close at $31.77 on the Nasdaq.
The S&P anointment comes at a good time for Google’s stock, which has fallen from its record high of $475.11 during the past two months amid concerns about a slowdown in the company’s rapid earnings growth and questions about its sometimes cryptic communications with Wall Street. Those jitters had wiped out more than $20 billion in shareholder wealth.
Up until recently, Google’s stock had been riding high on a wave of investor euphoria driven by the company’s rapidly rising profits, which have ballooned from $100 million in 2002 to $1.5 billion last year.
Now, a much wider swath of investors will be affected by the sometimes wild swings in Google’s stock.
Industry analysts believe Google could reduce its stock’s volatility by providing more information about its financial outlook, but its management has steadfastly refused to provide such guidance — a staple at most publicly traded technology companies.
Even as it refuses to abide by Wall Street’s traditions, Google now finds itself stamped as a blue-chip company. Google had already established its credentials by carving out market value that had already surpassed many of the nation’s best-known companies, including the likes of Boeing Co., Hewlett Packard Co. and Home Depot Inc. — all components of the even more exclusive Dow Jones industrial average.
Despite its stock’s recent downturn, Google’s market value has remained above $100 billion.
Google is making the leap into the S&P 500 at an unusually early age.
Founded by Larry Page and Sergey Brin in a Silicon Valley garage just 7½ years ago, Google didn’t even become a public company until August 2004. That initial public offering at $85 per share turned Page and Brin into multibillionaires.