Shares of Salesforce.com jumped Wednesday after Standard & Poor's announced late Tuesday that the on-demand software stock would be added to the S&P 500 Index.
It takes the place of one of the mortgage giants, which will be removed from the index after the close of trading after they failed to meet the index's market cap requirement of $5 billion.
spot on the index will be taken over by nuts and bolts supplier
. The company's stock rose just 30 cents, or 0.6%, to $52.48 on the news.
Salesforce.com's stock was up $4.50, or 8.6%, to $56.60 in recent trading, recovering some of the ground it lost since the beginning of the year, when it traded at $63.55. Salesforce.com's one-year price target is $69.50, according to Thomson Reuters.
Shares of Salesforce.com fell 18.5% Aug. 21
The company now has a market cap of $6.8 billion.
Salesforce.com claims the distinction of being the first on-demand software company - a supplier of software as a service (SaaS) - added to the index. The Web-hosted business model is a challenge to traditional suppliers of packaged software, such as
"The S&P 500 is fairly heavy with traditional software companies
that some might consider stodgy," says Ken Bender, managing director of the Software Equity Group, a software-industry investment bank. The public SaaS providers, which number 19, are "the next generation of software companies."
By building a business on a new delivery model in such a competitive market, Salesforce has achieved something "nothing short of phenomenal," Bender says. Salesforce has succeeded not just by addressing the needs of medium-sized businesses, but also by focusing on large enterprises, which are outsourcing more of their internal processes.
Salesforce.com's revenue growth rate for the quarter ended in July was 50%, Bender says.