As many of you may already be aware, Facebook closed a deal to buy virtual reality firm Oculus Thursday evening for $2 billion ($1.6 billion in stock and $400 million in cash). Mark Zuckerberg, Facebook’s CEO, envisions a future where people can speak “face-to-face” with doctors, shop and even go to sports events, all through virtual reality wherever they are. The technology is fascinating and may have broad implications down the road. You can read more about Facebook’s acquisition here.
Interestingly, Facebook’s recent acquisitions have been made using mostly FB shares. Since Facebook is still a relatively “young” company, it makes sense that they are saving cash. However, this brings up another point. Facebook paid a whopping $19 billion for WhatsApp and another $2 billion for Oculus. Though these figures seem astoundingly high, the amount of FB shares they used in the purchases point to the possibility that Mark Zuckerberg believes FB shares are trading at a more-than-reasonable level. As a chief executive, if you believe your shares are undervalued, you should make purchases using cash (or even borrow cash to fund purchases) and if you believe your shares are overvalued, you should make purchases using shares. Just a little food for thought.