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.

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Joe Lan
ABOUT THE AUTHOR:

Joe Lan is a financial analyst for AAII. Joe is a graduate of Northeastern Illinois University, where he earned a bachelor's degree with a double major in accounting and finance and holds a master's degree in accounting and financial management from the Keller Graduate School of Management. Joe writes extensively for Computerized Investing and is a frequent contributor to the AAII Journal. Joe also sits on the advisory committees for the Stock Superstars Report and Dividend Investing newsletters. Lan is a holder of the right to use the Chartered Financial Analyst (CFA) designation.

1 Comment on this article. Feel free to join this conversation.

  1. Pete March 26, 2014 at 10:36 pm - Reply

    I’m surprised Oculus VR sold out so soon. But this is a game changer and should expedite VR’s arrival into the mainstream.

    Here’s my take on how Facebook will utilize VR…

    Facebook’s been focusing heavily on image recognition (their face detection on photo tagging was a minor application of it a couple years ago), so that we can make more sophisticated searches on the Graph like: “find me photos of me and my cat from the year 2012″ or “find me photos of myself where I’m not smiling.”

    But there’s more to it than just that.

    From a revenue standpoint I think the true potential of image recognition will be in a concept called “blipping”… this would be where you put on your VR headset and find yourself walking around Times Square in New York (because you’ve always wanted to visit but didn’t want to fly there). You pause to look at a slice of pizza that someone’s eating, and a pop-up for Domino’s appears in your field of vision. And then you notice a guy in an M3 coupe honking at pedestrians, so another pop-up for BMW “blips” right in front of you.

    VR will make the internet exist in the air around you, and as a result, blipping will change advertising forever. Before the acquisition the only thing Facebook lacked to achieve this was the hardware. Now that they have it, I say Oculus lives as only a gaming device for 2-3 years before a true VR platform is created.

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