After the surprising $1 billion acquisition of Instagram (that made thousands of the photo sharing service users to close their accounts) Facebook decided to invest $550 million in patents. This happens in a moment when the social network accounts not very convincing financial results and just before the planned for May Initial Public Offering (IPO).

The shares-printing for Instagram (paid mostly by shares) devaluates the average price per share even before the company is at stock exchange. Now spending $550 billion (half of year's profit) on patents squeezes out the cash of the company. So as a potential investor, I must ask a question - what exactly I am offered to buy at the IPO...

Buying patents right now is not very clever move. Even if Facebook has a patent battle at court with Yahoo, this is not current problem, but an issue that will last years. So Facebook can buy the needed patents after the IPO, keeping the real assets (like the cash) at the company until the IPO is over. Instead now they have hundreds of patents that as assets are very difficult to evaluate. When you have $550 million in cash you have just cash. When you have $550 million in patents it is not clear what exactly you own... And what it its real price... :)

It may sound like a joke, but It looks like Mark Zuckerberg is in mad love with his company and does not like to sell any shares to investors. So he makes everything possible to ruin the IPO... :)

Dobri
April 24th 2012