Is This Bad News for Facebook Stock (FB)?
Facebook Inc (NASDAQ:FB) is currently embroiled in a strange little lawsuit that could undermine its huge investment in Oculus VR. But in order to figure out what this case could mean for Facebook stock (FB), we have to dig into the nitty-gritty details.
Companies are forced to reveal all sorts of sensitive information during these types of lawsuits, so markets tend to put a spotlight on them.
In this case, video game publisher ZeniMax Media Inc. claims that Facebook knowingly poached its employees to enhance Oculus products. These employees supposedly violated their contracts with ZeniMax by revealing proprietary information, which would be a big deal for FB stock.
After all, the virtual reality tech that Facebook acquired through Oculus is key to FB stock’s growth strategy. No one believes that advertising revenues can fuel Facebook stock forever—that’s where Oculus VR comes in. It was the first big hardware play for Facebook.
Mark Zuckerberg personally flew out to demo the virtual reality gear in 2014. He was so impressed with the potential of VR that he offered Oculus $2.0 billion. Or so we believed.
Part of the testimony in this lawsuit revealed that there was an extra $1.0 billion worth of bonuses and incentives.
Those figures were kept out of the public eye during the transaction (and since then, for that matter), making it seem like Facebook wanted us not to know. (Source: “Mark Zuckerberg reveals that Facebook paid more than we thought for Oculus VR,” Business Insider, January 17, 2017.)
Should we be worried about this extra billion dollars? Will the ZeniMax-Oculus lawsuit hurt Facebook stock in any substantial way? We can’t know for sure, but it seems like the end result won’t be that dangerous because FB stock is insulated from harm.
Why? Let me explain…
Facebook Stock (FB) Forecast 2017
Much of the case revolves around the hiring of Oculus’s chief technology officer, John Carmack. He was hired away from ZeniMax, along with five employees, to come work for Mark Zuckerberg. The information he brought with him apparently violates some contract.
To be perfectly clear, I know nothing about that. Very few people know the intimate details of what happened there; what information was shared and what wasn’t. But what I do know, is that Facebook denies knowing anything about the contract. It says everything was above board.
ZeniMax’s response to that claim is incredibly important. It says Facebook should have known about the contracts. The company’s lawyer, Tony Sammi, brought CEO Mark Zuckerberg to give testimony. Sammi asked him how quickly the deal was put together.
According to Zuckerberg, the entire vetting process took place in the span of a weekend.
“So your plan for a $2-point-something billion deal was to begin legal diligence on Friday, and sign the deal on Monday, over a weekend, right?” the lawyer asked Zuckerberg.
“Yeah,” he replied. (Source: Ibid.)
Not exactly what you want to hear, right? That answer makes it sound like Facebook was just checking boxes instead of performing a thorough investigation. But here’s the thing: Mark Zuckerberg is no fool.
If I can discern what the other side is trying to do, you better believe that the CEO of Facebook, the prodigy that is Mark Zuckerberg, knows as well.
Don’t forget that he’s been in his fair share of intellectual property battles. Remember the Winklevoss twins? Or Facebook co-founder Eduardo Saverin? People have been suing Zuckerberg since the company’s earliest days, yet they all fade into the shadows of history.
Facebook stock has tripled the money of any investor who bought it at the IPO price. It did so regardless of petty lawsuits, so there’s no reason to believe that will change now.