Uber shares rose when it was included in the S&P 500 index

Dara Khosrowshahi, CEO of Uber, speaks on Squawk Box at the World Economic Forum in Davos, Switzerland on January 18, 2023.

Adam Gallica | CNBC

Shares of Uber rose 5% in extended trading on Friday after shares of the ride-hailing company rose He added to the S&P 500, replacing Sealed Air Corp.

The change will take place before the opening of trading on Monday, December 18, according to a press release.

A company’s stock price often rises on news of its inclusion in the S&P 500 because fund managers who track the benchmark index, which is updated quarterly, have to acquire shares. Companies also have to meet certain valuation and profitability requirements.

Uber shares debuted on the New York Stock Exchange in 2019, but the company was burning cash as it had to pay drivers enough money to remain competitive in the low-margin business. Its preferred measure was adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.

Most of Uber’s adjusted EBITDA comes from mobility, but the company made its delivery business profitable faster than planned, after investors who fear a recession became more averse to investing in loss-making companies. The growth in advertising revenues also contributed to Uber’s increased profitability.

Uber cut more than 3,500 jobs in 2020, and executives have since worked to improve its cost structure. For example, they reduced the cost of deliveries. Uber reported net income of $221 million on revenue of $9.29 billion in the third quarter, and in the past four quarters altogether, it has generated more than $1 billion in profits.

“Nelson [Chai, Uber’s outgoing finance chief] “My goal is to build a company that can compound senior rates at very attractive rates and continue to improve margins over a period of time,” Uber CEO Dara Khosrowshahi told UBS analyst Lloyd Walmsley at an investor meeting in December 2021. “You’ve seen those factors that increase profit margin over the long term, and you know, the greats of the world, the Googles, the Facebooks, the Microsofts of the world, and we aspire to no less than that.”

According to Standard & Poor’s rules, index members must have positive earnings in the most recent quarter and over the previous four quarters in total. Index components must have an adjusted market capitalization of at least $14.5 billion.

Uber’s market cap is about $118 billion, while the average market cap of companies in the S&P 500 is just over $31 billion.

He watches: Uber is in the S&P 500