The thing about small companies is they sometimes grow up to be big ones.
Just ask Twitter, which on Thursday will join the S&P 500 index, replacing agricultural chemical giant Monsanto.
The S&P 500 is one of the most important and widely viewed indexes in the world, representing $2.2 trillion of U.S. company equities, and 80% of the entire stock market.
Why is this a big deal?
Twitter’s inclusion in the index is a big deal, because it’s an indication that the social networking company which launched in 2006 as a niche business capitalizing on short bursts of communication called tweets, has grown up.
Businesses on the S&P are referred to as large caps, and they are generally older businesses with a record of profits, and established streams of revenue. They’re also generally considered more stable than younger and smaller competitors, because of their scale and the length of time they’ve been around.
Learn more: What’s the S&P?
Apple is on the index, but so too is steel giant Alcoa, aerospace titan Boeing, and tire manufacturer Goodyear, not to mention drugmaker Merck, and the footwear giant Nike.
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What happened to Monsanto?
Monsanto will merge with German pharmaceutical company Bayer, which acquired it for $62 billion. The S&P is a listing of large U.S. stocks.
Businesses on the S&P are referred to as large caps, and they are generally older businesses with a record of profits, and established streams of revenue.
What’s going on with Twitter?
Twitter is suddenly profitable. After years of losing money, it has notched two quarters of profit, starting with the fourth quarter of 2017, and including the first quarter of 2018. Companies must meet profitability requirements before they can be included on the S&P.
Twitter says it expects to be profitable for the full year 2018, according to reports.
Learn more: What’s an index?
Good to know: Two important indicators to consider when looking at any company are revenue and profit, which are sometimes referred to as sales and net income. They tell you how much money a company makes, and how much it has left over after meeting expenses.
Generally speaking, revenue is the total amount of cash a company brings in during a quarter, or throughout the year, through sales.
By contrast, profit is the amount of cash that’s free to spend after the company has used its revenue to pay its expenses, such as salaries and rent, and all other ongoing operational costs.
Mutual funds and exchange traded funds that track the S&P 500 will now need to include Twitter to make sure they follow the index accurately.
If investing in broad market funds, including ones that follow the S&P 500, appeals to you, check out these investments offered on Stash here.
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