Facebook's Spending Spree: Does It Present a New Risk to Investors?

Shares of Facebook took a 5% haircut on Thursday, and while the pullback may have been due to Facebook's overall pricey valuation, the market may also have been concerned with the company's 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. Although 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. 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 tolerance for risk toward 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. Its $1 billion acquisition of Instagram two years ago still has not demonstrated any meaningful monetization despite growing the 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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The article Facebook's Spending Spree: Does It Present a New Risk to Investors? originally appeared on Fool.com.

Jamal Carnette and Mark Reeth have no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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