Maybe we’ll someday see a Facebook Inc (FB) driverless car? Perhaps so. But one thing is sure: Facebook is gearing up for more moonshots. The social networking giant poached Regina Dugan of Alphabet Inc (GOOG, GOOGL) to run its “Building 8” unit.
It’s kind of a rite of passage for Facebook, as other iconic operators, like IBM (IBM), AT&T Inc. (T), Google and Microsoft Corporation (MSFT), have their own labs.
In some cases, they have led to earth-shaking innovations. AT&T’s Bell Labs was a font of breakthroughs, springing forth the Unix operating system, the C/C++ computer languages, the laser, radio astronomy and even the transistor. In fact, Bell Labs received eight Nobel Prizes because of work done at the organization.
As for Dugan, she was the director at the Google Advanced Technology and Projects group, where she developed innovations for phone security, 3D mapping and even smart fabrics. Of course, she will be do similar far-flung activities at Facebook.
What Is Facebook’s Building 8?
Mark Zuckerberg described Building 8 in a Facebook post as being focused on “building new hardware products to advance our mission of connecting the world.” This will involve “aggressive, fixed timelines, extensive use of partnerships with universities, small and large businesses, and clear objectives for shipping products at scale.”
In other words, FB wants something cutting-edge, but practical.
No doubt, there will certainly be failures. Then again, this has been the case with Google as well. Remember the expensive failure that was Google Glass? Yet, Google found traction with other technologies, such as self-driving vehicles.
Then there’s the threat of corporate politics. That is, some units may fear new developments that could take away power. Or there just may be skepticism about making untested bets.
A classic example of this is what happened to Xerox Corp (XRX) PARC during the 1970s. The research lab was a tremendous source of innovation, creating Ethernet connections, the graphical user interface, the PC, laser printers and object-oriented programming. Yet, the executives thought these were mostly science fiction and that XRX should focus on making better photocopiers. So other scrappy entrepreneurs capitalized on the innovations Xerox was afraid of, such as Microsoft’s Bill Gates and a then-underdog Steve Jobs who, of course, formed Apple Inc. (AAPL).
Although, there is evidence that the Menlo Park-based social giant should be able to avoid such issues. Let’s face it, Zuckerberg made the tough transition to mobile, which essentially saved the company. But there were also savvy acquisitions, such as Instagram and WhatsApp.
Oh, and Dugan appears to be pumped up and qualified. In her own Facebook post, Dugan writes: “Building 8 is an opportunity to do what I love most… tech infused with a sense of our humanity. Audacious science delivered at scale in products that feel almost magic. A little badass. And beautiful. There is much to build at Facebook… and the mission is human… compelling.”
Keep in mind that she received a Ph.D in mechanical engineering from Cal Tech and was also the first woman to head up the Pentagon’s DARPA, which was the organization that helped create the internet and other path-breaking systems and technologies.
Bottom Line on Facebook Stock
“Building 8 is another sign that Facebook and its leadership team have been especially astute to get ahead of the Internet of Things (IoT) and Artificial Intelligence (AI) technology curves,” said Cafyne CEO and Founder Rohit Valia in an email interview. “By doubling down on R&D, Facebook is setting itself up to become even further ingrained into multiple touch points at the consumer and business levels.”
But the impact on the stock is likely not to be significant in the near-term. Although this should not matter much. As I’ve noted several times in my InvestorPlace posts, Facebook is getting an outsized share of the mobile ad opportunity because of the company’s massive scale and tremendous user data.
In the latest quarter, revenues surged by 52% to $5.8 billion ,and non-GAAP net income came to a hefty $2.3 billion. The valuation is also reasonable, with the forward price-to-earnings ratio at about 26.
All in all, for investors looking at a play on some of the key megatrends in technology, FB stock is still a pretty good choice.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
