The S&P 500 index components have been adjusted again, but Robinhood still hasn't made it in.

Author: Long Yue, Wall Street News

The advertising technology company Trade Desk unexpectedly gained a spot in the S&P 500 index, while the “top candidate”—the brokerage stock Robinhood, which has a larger market capitalization and has increased by 168% this year—was once again not selected.

On Monday, S&P Dow Jones Indices announced that Trade Desk will replace Ansys in the S&P 500 index before the market opens on Friday. This adjustment comes as a result of Synopsys’s acquisition of Ansys, which is expected to be completed on Thursday. However, the highly watched Robinhood has once again missed out on this benchmark index.

The news immediately triggered disappointment in the market, with Robinhood’s stock dropping about 1% in after-hours trading; in contrast, The Trade Desk’s stock surged by 14%. The inclusion of Trade Desk surprised the market, as its market capitalization is only $37 billion, far below Robinhood’s $88 billion. The latter’s stock has soared 168% this year and is widely viewed as a popular candidate for index expansion, even being considered the “top candidate.”

This is not the first time Robinhood has been excluded. The company also failed to make the cut during the quarterly routine adjustment in June, when the index committee decided not to make any additions or deletions. After the last news of exclusion broke, Robinhood’s stock price plummeted over 6% in after-hours trading.

Market capitalization advantage did not translate into eligibility

Robinhood significantly outperforms Trade Desk in both market capitalization and stock price performance. With a market capitalization of $88 billion, Robinhood is one of the largest companies not included in the S&P 500 index, more than double the market cap of Trade Desk.

In terms of stock performance, the two companies have shown completely different trends this year. Robinhood’s stock price has increased by 168% this year, while Trade Desk has decreased by 36%.

Trade Desk experienced a severe setback after its performance announcement in February, dropping 33% in a single day, marking its largest historical decline. Jefferies analyst James Heaney provided negative commentary on the company’s performance at the time, and the company acknowledged execution issues, while Wall Street expressed concerns over the competitive pressures it faces.

Recently, institutional attitudes have shifted. Evercore ISI analyst Mark Mahaney raised the target price of Trade Desk from around $68 to $90 at the end of June, calling it “one of the highest quality and most stable companies in the internet sector for a long time, providing an attractive opportunity to re-engage.”

Overall, the S&P Index Committee ultimately chose Trade Desk. The company is classified in the communication services sector, while the replaced Ansys belongs to the information technology sector. This adjustment will slightly change the sector composition of the index.

The Exponential Effect Drives Capital Flow

The adjustment of the S&P 500 index components is of significant importance to the relevant companies. According to previous reports, index funds hold more than a quarter of the shares of S&P 500 component stocks. Inclusion not only signifies the legitimacy of the enterprise but also means that funds tracking the index must increase their holdings of the relevant stocks.

The selection criteria for the S&P 500 index include requirements such as market capitalization thresholds, profitability, and liquidity, but the index committee has a certain degree of autonomy when choosing new members.

The wait continues for Robinhood.

Robinhood Tokenized Stock Product Faces European Regulatory Storm

Robinhood’s recent tokenized stock initiative seems to have encountered obstacles.

US online brokerage Robinhood recently launched tokenized stock trading in Europe, allowing European retail investors to purchase tokens linked to the equity of private companies such as OpenAI and SpaceX.

However, this move has not only met with strong opposition and warnings from OpenAI, but also attracted the attention of European regulators, with the Bank of Lithuania launching an investigation into Robinhood’s stock token products.

On July 3rd local time, OpenAI issued a statement on the social media platform X, clearly stating that the tokens provided by Robinhood are not equity in the company, and that the company has neither participated in nor endorsed this product. “Any transfer of OpenAI equity requires our approval - we have not approved any transfers,” the company warned.