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Where Facebook Inc. Goes From Here

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Maybe the multiple acquisitions resulted in information overload, or perhaps concerned investors are wondering what in the world Facebook (NASDAQ: FB  ) won't buy that has its stock price reeling. Whatever the root cause, Facebook shareholders have been pounded this past week.

A week ago, Facebook was trading at $67.24 a share -- down from its high for March of $71.57 -- but well within a reasonable trading range. Unfortunately, Facebook shareholders have suffered through a steady decline since last week, culminated by a heavy sell-off following news of its latest acquisition, virtual-reality king Oculus. At $60.01 a share, Facebook's stock is the lowest its been since late January. What happens to Facebook from here?

Where's the love?
Of Facebook's three most recent acquisitions -- the $19 billion WhatsApp whopper, last week's $2 billion deal for Oculus, and the rumored $20 million spent for drone-maker Ascenta -- the only one that should have been cause for consternation, wasn't.

With about 450 million users, and growing to the tune of 1 million more a day, WhatsApp is the king of smartphone messaging apps. That would seem to bode well for Facebook, which has pushed its own Messenger service unabashedly, seemingly forever. The problem from a business perspective is WhatsApp's lack of monetization, with no plans to change that anytime soon, according to both Facebook and WhatsApp execs.

The market's reaction to the WhatsApp transaction? Facebook closed up over $1.50 a share to $69.63 the day following the announcement, on trading volume more than twice the daily average of nearly 61.5 million. Investors may not have fully understood how CEO Mark Zuckerberg intended to get a return on his $19 billion investment, but they were willing to give Facebook the benefit of the doubt.

Though the drone-making company Facebook recently purchased may have been a surprise -- rumors earlier this month had it buying Titan Aerospace for $60 million -- the intent wasn't. Zuckerberg is taking his ambitions seriously, and the laser-beaming Internet drones from Ascenta will help bring Internet access to the underserved masses.

The recent move to acquire Oculus for $2 billion appears to be the culprit, at least the primary one, for Facebook's stock price nosedive. Immediately following the announcement, Oculus developers and users began a flurry of "the virtual sky is falling" rants, including several negative posts on the Oculus "kick-starter" blog.

The fear from virtual-reality aficionados is that affiliating with Facebook will somehow ruin their vision of what will become of their beloved Rift, Oculus' virtual reality headgear. Interestingly, many of the recent posts on Oculus' kick-starter blog indicate that many users have come to the realization that for Rift to really grow and reach its potential, a financially sound partner like Facebook makes sense. It will be intriguing to watch the kick-starter in the next several days to gauge the mood of Rift users, now that some time has passed.

Where does Facebook go from here?
Yes, Oculus Rift user and omnipotent gaming guru Notch Persson said he won't develop a virtual-reality version of his hit game Minecraft now that Facebook's in the picture, but is that worthy of a significant drop in share price? Not even close. Nor do concerns about the riskiness of the Oculus deal warrant Facebook's current share price, a sentiment shared by several analysts when the acquisition was first announced.

Why? Because as noted in a recent article following the Oculus deal, it's the one acquisition that offers Facebook a clear path to monetization, offering multiple advertising opportunities. Even more intriguing for Facebook and its shareholders are the endless possibilities Rift offers across a host of applications. Virtual reality has the potential to dramatically change communications and social media in ways not even imagined yet, and that's a negative?

The short answer to the question of where Facebook goes from here is simple: to the top of every value investor's buy list.

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  • Report this Comment On March 31, 2014, at 2:48 PM, HectorLemans wrote:

    I really hope it falls further. The amounts they've been paying for companies with little to no revenue and profit is ridiculous and should be punished by the markets. They shouldn't have gone public if they didn't want to be held accountable by the market.

  • Report this Comment On March 31, 2014, at 4:32 PM, sanoran wrote:

    Sheep herded to Facebook. Sheep need constant updates, they have to tell each other how their bowels are moving, ... and they need to follow their herd.

    The herd of sheep that made Zuckerberg rich is already leaving Facebook. They are wandering off. That is what sheep do.

    Zuckerberg is chasing the sheep, buying WhatsApp, much like Marissa Mayer is chasing sheep, buying Tumbler, ... and both are going to be disappointed. Sheep are easy to exploit, fun to for nicate, ... but they are also really really stupid, and they wander off easily.

    And when they sheep are gone, Facebook is... just Zuckerberg's website :)

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Tim Brugger

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.

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