Facebook’s S-1 has been filed, but what indexes will the company be placed into once it goes public? The answer will have a ripple effect through numerous market measures and products. We’ve gotten a lot of questions in recent days on the matter, including inquiries as to what sector indexes will be impacted. At this point we can say that while a company’s classification is always important, it is not always obvious. For example, Twitter’s CEO this week said “Twitter is not a media company.” This despite the fact that much of its revenue is derived from advertising.
Regular readers of this blog won’t be surprised to hear that we have a strict methodology for how we classify companies by sector. The prime directive we follow is that a company’s categorization is based on where it gets the majority of its revenue. Once that determination is made, the company gets assigned to one of the 114 Subsectors at the most granular level of our sector hierarchy. Those Subsectors get rolled up into one of 41 Sectors, then again most broadly into one of 10 Industries. So when Facebook does go public, it will be actually end up in several sector indexes.
Here’s our full classification methodology. You may also enjoy a post we recently wrote on how newly public companies get added to an index.
