Oculus Rift

Oculus' founders cashed for in $2 billion last week. Should Facebook investors be cheering or jeering? Credit: Oculus.

Was Facebook's (NASDAQ:FB) $2 billion purchase of virtual reality specialist Oculus a savvy move, reminiscent of Google's (NASDAQ:GOOGL) $1.65 billion buyout of then-profitless YouTube in 2006? Or stupid excess on the part of an idealistic, inexperienced chief executive?

Host Ellen Bowman puts these questions to Fool analysts Nathan Alderman and Tim Beyers in this week's episode of 1-Up On Wall Street, The Motley Fool's web show in which we talk about the big-money names behind your favorite movies, toys, video games, comics, and more.

Nathan says Facebook chief Mark Zuckerberg has thus far offered no meaningful rationale for his company's purchase. Ruminating on the general awesomeness of virtual reality doesn't count as a strategy, and it's disconcerting when you consider that only last month Facebook spent $19 billion to acquire WhatsApp, a loosely related messaging service that may prove tough to monetize.

Tim holds open the possibility that Zuck will find ways to make use of Oculus, even if we can't yet see the endgame. Oculus also never got a chance to prove itself fully. Facebook's bid took the company off the IPO track before common equity investors had a chance to get in.

We're seeing more innovators take this path. And why not? VCs and other private equity specialists enjoy pre-IPO exits at lush valuations while the rest of us are left with the likes of Candy Crush Saga maker King Digital Entertainment (NYSE:KING), which plummeted during its first day of trading last week. Count thousands of Oculus' early backers in that number. Gaming enthusiasts who pledged $2.5 million to the company in a Kickstarter campaign won't be receiving a share of the buyout proceeds.

Now it's your turn to weigh in using the comments box below. What do you think of Facebook's purchase of Oculus? Please watch the video as Ellen puts Nathan and Tim on the spot, and be sure to check back here often for more 1-Up On Wall Street segments.

Gaming your portfolio for the long term
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Neither Ellen Bowman nor Nathan Alderman owned shares in any of the companies mentioned in this article at the time of publication. Tim Beyers owned shares of Google. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Compare Brokers