Biz Break: Harsh reality for Facebook after $2B Oculus acquisition
03/26/2014 03:42:36 PM PDT
03/26/2014 06:11:34 PM PDT
FILE - In this Jan. 7, 2014 file photo, show attendees play a video game wearing Oculus Rift virtual reality headsets at the Intel booth at the International Consumer Electronics Show(CES), in Las Vegas. Facebook said Tuesday, March 25, 2014, it has agreed to buy Oculus for $2 billion, betting that its virtual reality may be a new way for people to communicate, learn or be entertained. (AP Photo/Jae C. Hong, File)
(Jae C. Hong)
com/60secondbusinessbreak/ci_25418175/biz-break-facebook-buys-virtual-reality-startup-oculus">at least $2 billion to Oculus on Tuesday, which wrought the ire of some analysts.
Today: Facebook falls as analysts sow doubts about the social network's $2 billion purchase of virtual reality startup Oculus VR. Also: Other tech stocks join in the decline, including rookie King Digital.
The Lead: Facebook faces investor, analyst wrath after $2 billion Oculus buy
After committing $2 billion to the purchase of virtual reality startup Oculus, Facebook awoke to a harsh response Wednesday from analysts and investors, who sent the company's stock plummeting after its second multibillion-dollar acquisition in about a month.
Facebook stock plunged 6.9 percent to $60.38 Wednesday, its lowest closing price since Jan. 29, when the Menlo Park social network announced a 700 percent gain in fourth-quarter profits, sparking a stock surge. Since that news, Facebook founder and CEO Mark Zuckerberg has gone on a shopping binge, committing at least $16 billion to the purchase of mobile-messaging app WhatsApp in February and
"OK, I'll come right out and say it: Mark Zuckerberg is nuts," tech analyst Roger Kay wrote Wednesday in a column for Forbes. Speaking with Reuters later, Kay explained, "I'd be surprised if a lot of people want to spend serious time with goggles that shut the world out entirely."
Other analysts' concerns ran the gamut, but many seemed to reserve judgment of Kay's type -- for now -- given Facebook's track record of rapid mobile monetization efforts in the past year.
"Facebook was late to adopting the mobile platform, though it certainly caught up with this platform shift and is now arguably one of the shift's leaders," RBC Capital Markets analyst Mark Mahaney told Bloomberg News. "The question this time is whether Facebook is too early or simply betting on the wrong platform."
While analysts from Cantor Fitzgerald called Oculus a "long shot with an eye-popping valuation," they added, "we remain impressed with management's intense focus on trying to position Facebook for the next computing platform."
Management's intense focus was a concern for analysts, who questioned whether integrating two large acquisitions will distract from the company's main mission. William Blair analyst Ralph Schackart wrote, "While Facebook has clearly proved it is a forward-thinking company, we are getting slightly concerned at the rapid pace of multibillion acquisitions," and Topeka Capital Markets analyst Victor Anthony wrote, "Digesting two major acquisitions at one time is new for Facebook's management team and presents risks that could distract management's attention away from the core business."
Credit Suisse analyst Stephen Ju was the only analyst prominently cheering the move, writing, "Given the rapid shift in consumer engagement preference for Facebook from desktop to mobile/smart phone, we view this acquisition as a forward-thinking move to anticipate continued change."
Facebook's "forward-thinking move" moves them into Google's territory of searching for hot tech of the future, SoftTech VC founder Jeff Clavier said Wednesday.
"It's really the first acquisition of theirs which is really thinking about the future, versus the next wave of products or defensive," the venture capitalist told Reuters. "I don't know whether Oculus is as exciting as driverless cars or things like that in terms of impact. But at least it's a future technology that will definitively be mass market at some point."
SV150 market report: Technology stocks suffer as King Digital IPO gets crushed
Facebook was not alone in its Wall Street suffering Wednesday, as other social-networking companies also declined while tech's newest addition to the public markets, "Candy Crush Saga" maker King Digital, suffered the worst debut day for a stock this year.
After charging $22.50 a share in an initial public offering that valued the company at more than $7 billion, King shares dove 15.6 percent to $19 Wednesday in its debut on the New York Stock Exchange, the worst market debut for an IPO this year. Scott Sweet, senior managing partner at IPO Boutique, told MarketWatch that many IPO investors were hoping the shares would immediately rise, and when they didn't, the purchasers immediately dumped the stock, which he described as "extremely fast money." "It almost stood no chance," he said. Many King doubters brought up the travails of Zynga, the San Francisco social-gaming company that went public as its games were massively popular and now struggles to trade for half the $10 IPO price; Zynga fell 4.1 percent to $4.64 Wednesday.
Facebook and Zynga were joined in social-stock sadness Wednesday by Twitter, which declined 7.2 percent to $44.43, its lowest closing price of 2014, despite a judge reversing the ban on Twitter's service in Turkey. Twitter has now declined 30.2 percent so far in 2014 and is down 40.5 percent from its all-time intraday high, reached during a big run-up at the end of last year. The San Francisco microblogging company announced after the bell Wednesday that it is adding the ability to post multiple photos at once and tag other Twitter users in pictures amid a reported downturn in the amount of social sharing.
Google dropped 2.3 percent to $1,131.97 as Amazon introduced its own reduced cloud-services prices a day after the Mountain View Web giant did the same. Intel dropped 0.3 percent to $25.38 after reaching a partnership deal with fellow Silicon Valley chipmaker Altera, which declined 1.4 percent to $35.91. Netflix gained 0.4 percent to $372.28 while continuing its pursuit of documentaries, and Tesla Motors dropped 3.4 percent to $212.96 despite reaching a compromise that will allow the Palo Alto carmaker to continue sales in Ohio.
Up: Oracle, SunPower, LinkedIn, Splunk, Netflix
Down: Twitter, Facebook, Pandora, SolarCity, Palo Alto Networks, Zynga, VMware, Tesla, Adobe, Salesforce, EA, Applied Materials, Google, Nvidia, Yelp, Workday, Juniper, Symantec, Yahoo, eBay, Intuit, NetApp, Sandisk, Apple
The SV150 index of Silicon Valley's largest tech companies: Down 21.06, or 1.37 percent, to 1,518.65
The tech-heavy Nasdaq composite index: Down 60.69, or 1.43 percent, to 4,173.58
The blue chip Dow Jones industrial average: Down 98.89, or 0.6 percent, to 16,268.99
And the widely watched Standard & Poor's 500 index: Down 13.06, or 0.7 percent, to 1,852.56
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.