Are investors tiring of Facebook's spending spree?

Shares have fallen lately, perhaps on concerns over how the social network is allocating its capital.

By Motley Fool Investor Beat Apr 4, 2014 3:42PM
Shares of Facebook (FB) took a 5 percent haircut on Thursday, and while the pullback may have been due to the company's overall pricey valuation, the market may also have been concerned with its capital allocation strategies as of late.

Facebook's two big purchases recently, instant messaging app WhatsApp and virtual reality headset maker Oculus VR, came to a combined total of $21 billion. Should investors be concerned that management is starting to spend a bit too freely?
On Friday's Stock of the Day, host Mark Reeth and Motley Fool tech analyst Jamal Carnette look at Facebook's recent spending decisions. Though much of the expense of these deals was paid for with company stock which is currently expensive enough to make that a smart move, Jamal says that this is still something investors should keep an eye on. Caption: The 'Facebook' logo is seen on a tablet screen
Credit: © LIONEL BONAVENTURE/AFP/Getty Images

He notes that with CEO Mark Zuckerberg still having the lion's share of the voting rights in the company, there may be some agency risk here if his risk tolerance towards acquisitions moves too far away from that of shareholders.

Jamal says he personally is looking back at how previous large acquisitions of Facebook have performed for the company. Facebook's $1 billion acquisition of Instagram two years ago still has not demonstrated any monetization despite growing the Instagram service dramatically since then. Jamal says he would like to see that bear fruit before seeing more moonshots from the company, and is staying away from Facebook stock today.

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Tags: FB
10Comments
Apr 4, 2014 9:22PM
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I don't own any facebook and I could care less what the little zukey burger does.
Apr 5, 2014 7:06AM
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Economist, I am not but logic and some common sense I know.........companies like Facebook do nothing substantive for our economic improvement.........the only person getting disgustingly rich here is Zuckerburg or whatever his name!...........he's laughing all the way to the banks.  I have family members who are Facebook junkies..........(yes it's an addiction).....thinking they can bare their lives on this nonsensical medium without risk...........WRONG.......one member just got hacked!!!!

Social media is not innocuous and the sooner people "Get It" maybe they'll be better off.


Apr 5, 2014 8:14AM
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I’m as concerned about Facebook managers selling out as I am about them spending too much. I read on Bloomberg that Cheryl Sandberg, Facebook’s COO cashed in over $150 million of her shares recently. I suppose that’s another reason the stock price could be going down.

It looks to me like a case of selling at the top and leaving your shareholders holding the bag. Or perhaps in Cheryl’s vernacular it’s “Lean In” while I bail out.

If I had a Facebook account I would un-friend her.

 

Apr 5, 2014 1:48PM
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Social media sites are an entire and complete con and have been.  It is just going to end up in the gutter.  Billions will be lost when it all hits the fan and it will.  This crap is junk bonds and worse.
Apr 5, 2014 4:17AM
Apr 5, 2014 9:02PM
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so letterman is retiring??  I thought he had been fired back when he was caught screwing an intern?
Apr 5, 2014 4:50PM
Apr 6, 2014 3:20PM
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it there money they can do what every they want to do with it I would not care a rats **** unclebubba78
Apr 6, 2014 1:10PM
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(Crickets chirping with faint human laughter in the background)
Apr 7, 2014 9:30AM
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......and Letterman leaving, has what to do with Facebook, fkn moron...
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