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Facebook set to buy Oculus VR for $2 billion

By Sarah Frier
Bloomberg News

SAN FRANCISCO Facebook is making a $2 billion bet that a virtual-reality headset will one day become the center of its users’ social lives.

On Tuesday, the largest social network said it was buying Oculus VR, pushing into wearable hardware for the first time and stepping into a race with Google. Irvine, Calif.-based Oculus makes a ski-goggles-like device called Rift, now used for playing games, that eventually could immerse people in experiences like classes and sport events.

Facebook CEO Mark Zuckerberg is following Google in seeking growth beyond smartphones and tablets. While Apple’s iPhone and Google’s Android mobile devices dominate today, developers are looking for new gadgets to showcase wares and are focusing on the more lifelike experiences that Oculus provides, Zuckerberg said in a blog.

“Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow,” Zuckerberg said. “Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.”

Facebook agreed to pay $400 million in cash and 23.1 million shares for Oculus, as well as an additional $300 million if the startup achieves certain milestones, the Menlo Park, California-based company said in a statement.

The deal follows a spate of acquisitions that Facebook has used to build up its mobile business. Last month, the company agreed to purchase messaging application WhatsApp Inc. for $19 billion. In 2012, Facebook bought mobile photo-sharing program Instagram for what today is valued at about $700 million.

The 10-year-old social network, which held an initial public offering in 2012, has completed or announced more than 40 acquisitions valued at a total of more than $21 billion, including WhatsApp, Oculus and a $550 million deal for a Microsoft portfolio of patents, according to data compiled by Bloomberg. Facebook had $11.4 billion in cash and investments at the end of 2013.

Facebook shares slumped $4.51, or about 6.9 percent, to close at $60.38 on Wednesday. The stock is up 10 percent this year.

Facebook’s claim about virtual reality’s potential is hard to prove or disprove, said Mark Mahaney, an analyst at RBC Capital Markets.

“What we do know is that 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,” said Mahaney, who has the equivalent of a buy rating on the shares. “The question this time is whether Facebook is too early or simply betting on the wrong platform.”

Oculus will be competing in a crowded wearable-technology market. Google is rolling out Glass, which are spectacles with smartphone capabilities, and earlier this week teamed up with Luxottica Group, which owns eyewear brands such as Ray-Ban, to help the product go mainstream. Samsung Electronics has introduced smartwatches. Intel on Tuesday said it acquired closely held Basis Science, the maker of a wristwatchlike device, website and app that help users track exercise and sleep.

Zuckerberg said on a conference call that he doesn’t expect the Oculus devices to be profitable. Facebook plans to make money through software and services or advertising instead, he said.

Facebook considered building its own virtual-reality platform, but it didn’t have the technology or engineers that Oculus had, Zuckerberg said. The CEO said he wants to make Oculus’s product “ubiquitous” and bring it to market as soon as possible.

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