Updated from 8:49 a.m. to include thoughts from Wedbush analyst.
NEW YORK (TheStreet) -- Facebook (FB - Get Report) last night announced that it's going to buy Oculus VR, maker of the virtual reality gaming system, Oculus Rift, for $2 billion in cash and stock. While the announcement came out of left field, Wall Street seems to like the deal even if some sell-side analysts don't quite know what it means.
In the press release announcing the deal, Facebook said the purchase price includes $400 million in cash and 23.1 million shares, valued at $1.6 billion. There's also a provision for an additional $300 million earn-out in cash and stock based on certain milestones. Facebook said it expects to close the deal in the second quarter of this year.
Oculus is best known for its' virtual reality headset, the Oculus Rift.
"While the applications for virtual reality technology beyond gaming are in their nascent stages, several industries are already experimenting with the technology, and Facebook plans to extend Oculus' existing advantage in gaming to new verticals, including communications, media and entertainment, education and other areas," the company said in the release. "Given these broad potential applications, virtual reality technology is a strong candidate to emerge as the next social and communications platform."
"Mobile is the platform of today, and now we're also getting ready for the platforms of tomorrow," said Facebook founder and CEO, Mark Zuckerberg in the press release. "Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate."
On the conference call discussing the purchase, Zuckerberg and CFO David Ebersman said the $2 billion purchase price is based largely on the opportunities in the gaming market, but if the platform takes off, Oculus could be worth multiples of what Facebook paid for it. Shares of Facebook were down sharply in Wednesday trading, off 6.1% to $60.93.
In terms of valuation, games business is what FB used for valuation, based on projections. If platform goes elsewhere, then tech worth mult. Chris Ciaccia (@Chris_Ciaccia) March 25, 2014Zuckerberg, 29, also touched on Facebook's recent acquisition spree, buying Instagram in 2012 for roughly $730 million in cash and stock, and then acquiring WhatsApp last month. The Facebook CEO said these companies are rare, and the fact that they've been bought so close to one another is more coincidental than anything. "I think the key thing to keep in mind on this is these are all incredibly rare companies, right? So we'll go a long period of time without doing anything like this and then I think we're in this kind of rare period now where we've just done two really close to each other," Zuckerberg said on the call. "So I definitely don't think you should expect us to make multiple multi-billion dollar acquisitions within a couple of months frequently." Facebook CFO Ebersman noted that the social networking giant, which now has more than 1 billion monthly active users on mobile, has been selective in its M&A strategy, and will continue to be so over the life of the company. Following the conference call, Wall Street was by and large positive on the deal, especially down the line, as Facebook seeks to own the next major computing platform. Here's what a few on Wall Street, including TheStreet's Jim Cramer, had to say.