Facebook’s Alternate Financial Reality A $165 billion market value and dual-class share structure allow Mark Zuckerberg to spend the company’s stock on little more than a hunch

April 9, 2014 Leave a comment

Facebook’s Alternate Financial Reality

By RICHARD BEALES

MARCH 26, 2014, 1:04 PM  1 Comments

Mark Zuckerberg is liking a lot of deals.

After spending $19 billion on WhatsApp, the Facebook founder isdoling out $2 billion – and possibly more – in cash and stock on a virtual reality newcomer, Oculus VR. It’s arguably a riskier bet than the messaging app. Both deals also suggest a buy, not build, approach.

Oculus, which got going thanks to a Kickstarter campaign less than two years ago, is a hot property, attracting rave reviews for its Rift headset. For some observers, the company, led by a co-founder, Brendan Iribe, has done for virtual reality what Apple’s iPhone did for smartphones: combine available technologies into a package that’s both user-friendly and a revelation for those who try it.

That’s how Mr. Zuckerberg sees it, and not just for the obvious gaming potential – Oculus’ initial market – but eventually for social interactions. He suggests the headsets and software could become the next big computing platform.

Facebook’s $165 billion market value and dual-class share structure allow Mr. Zuckerberg to spend the company’s stock on little more than a hunch. Nevertheless, Oculus still needs to realize a big slug of its potential to justify the price tag – especially as it won’t, as the Facebook finance chief put it during a conference call, have a material impact on its new parent’s revenue for now.

Mr. Zuckerberg, who still essentially calls all the shots at Facebook, is displaying a willingness to pay what look like high prices to snap up what might be the next big thing. That may be pragmatic, and he argues the $1 billion he paid for picture-sharing app Instagram in 2012 has worked out well. But that strategy could end up getting expensive, especially as it’s unclear what criteria Mr. Zuckerberg is using to measure success.

As it is, Andreessen Horowitz and other venture capital firms are entitled to rub their hands over the handsome turn they are making on the $75 million of Round B investment they served up to Oculus in December. But maybe they should watch their backs. Next time, Mr. Zuckerberg may not even wait for endorsement from venture capitalists before swallowing the next hot early-stage tech start-up. Just like them, except on a larger scale, he needs to spread his bets to ensure he has enough winners in his portfolio

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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