Despite its enormous size and history of being a highly competitive stock, Wal-Mart was edged out of the Standard and Poor’s 500 Index’s Top 10 companies on June 22 for the first time by social media giant Facebook.
Although there wasn’t any particular move on either company’s part to warrant the change, this shift may be pointing to a fundamental changing of the guard. Facebook now joins Apple, Microsoft and Google in the Top 10 companies most valued by Wall Street.
Determining the value of a company. To determine the value of any company on the S&P Index, it’s simply a matter of taking the current value of one share and multiplying it by the number of shares in circulation. But that only tells a very small part of the story of a company’s impact on investors. When a company like Facebook, whose model is built entirely on a relatively new concept (in this case, social media), rises to such a favored status, it says a few things about the current mindset of investors.
First, giant retailers like Wal-Mart continue to fall behind in online market share, often being outpaced by small startups that explode onto the scene. As these companies fall further and further behind, investors lose faith that they’re going to be able to catch up in what is a quickly changing financial landscape.
Second, by investing more heavily in Internet companies like Facebook, investors are telling the world that they want to see more. More Internet, more social media, more of these intangibles that are being given value that makes them into a tangible of sorts. After all, what is Facebook selling? It is primarily focused on marketing and data collection — so the Facebooks of the world don’t have the same sort of physical products that a retailer like Wal-Mart would offer.
Investors investing in a promise. Yet, investors are ready to invest in Facebook’s ethereal promise in order to grow their money. There couldn’t be a stronger vote for online business than this. Investors are looking to a new model and new ways of buying and information-sharing. New media, including targeted advertising, has officially captured the hearts and minds of the investing public. And as goes the funding, goes the world.