Trade Desk Surges 14% After S&P 500 Inclusion, Robinhood Misses Out Again

Trade Desk, a digital advertising technology company, has been unexpectedly added to the S&P 500 index, causing its stock price to surge by 14% in after-hours trading. Meanwhile, Robinhood, an online brokerage with a market capitalization of nearly 900 billion and a year-to-date increase of 168%, has once again been overlooked for inclusion. This marks the second consecutive time that Robinhood has missed out on this opportunity, as its European tokenized stock business faces regulatory scrutiny.

Trade Desk's addition to the S&P 500 index was announced on Monday by S&P Dow Jones Indices. The change is due to Synopsys' acquisition of Ansys, which is expected to be completed on Thursday. Trade Desk will replace Ansys in the index before the market opens on Friday. However, the highly anticipated Robinhood was once again left out of this benchmark index.

This news immediately sparked disappointment in the market, with Robinhood's stock price dropping by approximately 1% during after-hours trading. In contrast, Trade Desk's stock price rose by 14%. The inclusion of Trade Desk came as a surprise to the market, as its market capitalization is only 370 billion, significantly lower than Robinhood's 880 billion. Robinhood's stock price has surged by 168% this year, making it a widely anticipated candidate for index expansion, even considered the top contender.

This is not the first time Robinhood has been overlooked. In the quarterly review in June, the index committee decided not to make any additions or deletions, and Robinhood's stock price plummeted by more than 6% in after-hours trading following the announcement of its exclusion.

Despite its market capitalization and stock performance advantages, Robinhood has not been able to secure a spot in the S&P 500 index. With a market capitalization of 880 billion, Robinhood is one of the largest companies not included in the index, more than double the size of Trade Desk. In terms of stock performance, the two companies have had contrasting trajectories this year. Robinhood's stock price has risen by 168%, while Trade Desk's has fallen by 36%.

Trade Desk experienced a significant setback in February following the release of its earnings report, with its stock price plummeting by 33% in a single day, marking its largest-ever decline. Analyst James Heaney from Jefferies gave a negative assessment of the company's performance, acknowledging execution issues and expressing concerns about the competitive pressures it faces. However, recent sentiment from institutions has shifted. Analyst Mark Mahaney from Evercore ISI raised Trade Desk's stock price target from around 68 dollars to 90 dollars at the end of June, describing it as one of the most consistently high-quality and stable companies in the internet sector, offering an attractive opportunity for reinvestment.

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

The inclusion of a company in the S&P 500 index has significant implications for the company. Index funds hold more than a quarter of the shares of S&P 500 components, making inclusion not only a mark of legitimacy for the company but also a requirement for funds tracking the index to increase their holdings of the relevant stock.

The criteria for inclusion in the S&P 500 index include market capitalization thresholds, profitability, and liquidity. However, the index committee has some discretion in selecting new members. For Robinhood, the wait continues.

Robinhood's recent tokenized stock initiative appears to have encountered obstacles. The online brokerage recently launched a tokenized stock trading service in Europe, allowing European retail investors to purchase tokens linked to the equity of unlisted companies such as OpenAI and SpaceX. However, this move has drawn strong opposition and warnings from OpenAI, as well as the attention of European regulators. The Bank of Lithuania has launched an investigation into Robinhood's stock token product. On July 3, OpenAI issued a statement on the social media platform X, stating that the tokens offered by Robinhood are not company equity and that the company has neither participated in nor endorsed the product. "Any transfer of OpenAI equity requires our approval—we have not approved any transfers," the company warned.