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Oculus Rift: How it Can Catapult Facebook (FB) Stock Higher

The Oculus buy initially had investors scratching their heads. Now they'll be padding their pockets.

   

Oculus Rift, the world’s premier virtual reality (VR) headset, was originally funded in 2012 in a $2.4 million Kickstarter campaign. Two years later, Facebook Inc (NASDAQ:FB) snapped up the company behind the Rift, Oculus VR, for a whopping $2 billion.

oculus rift how it can catapult fb stock higherThe immediate applications of the Facebook-Oculus Rift partnership were easily seen. FB wanted to expand its exposure to the gaming world, where the Oculus Rift was already receiving praise for its immersive video game experiences.

But Mark Zuckerberg’s long-term plans were far less clear, and many investors questioned the move, which came just months after FB shelled out $19 billion for the messaging service WhatsApp.

InvestorPlace contributor Brad Moon was surprised by the move from FB, reasoning that after Sony Corp (ADR) (NYSE:SNE) released its own Project Morpheus VR headset for the PlayStation 4, Microsoft Corporation (NASDAQ:MSFT) would’ve snagged Oculus before Facebook:

“I would have pegged Microsoft (MSFT) to be the most likely suitor. It has the cash, and with Sony’s VR move on the PS4, MSFT could use a response for the Xbox One.”

Today, we now know that FB stock will never be driven by the Oculus Rift’s dominance in gaming. Its potential applications are far greater than that, and, if successful, Oculus revenue growth could drive revenue growth at Facebook itself.

Oculus Rift: Sundance, Courtside Seats and Doctor’s Visits

Oculus VR is already bored with video games, and next week the company’s brand-spankin’ new virtual reality in-house film studio will debut a short film at Sundance Film Festival. The viewer will be able to interact with the plotline of the story; the film will be between 4 and 10 minutes long, depending on what choices the viewer makes. The film is called Lost, and FB hopes those viewers will get lost in the immersive nature of the Oculus Rift experience.

I’m eager to hear what the reviews for Lost are next week, but video games and movies aren’t the kind of applications that could catapult FB stock higher in the future. Zuckerberg, in a Facebook post announcing the Oculus VR acquisition, raved about the truly unprecedented potential of the Oculus Rift:

“After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a courtside seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face — just by putting on goggles in your home.”

If Facebook can proceed successfully with anything remotely like this, FB stock, trading at roughly 40 times forward earnings, could still be a steal.

Imagine the sort of ungodly sums that Oculus could drive in revenue for Facebook. Not only would Facebook sell the Oculus Rift device itself, but as owner of the platform it could take a cut of app/game sales. If doctors’ visits and the experience of courtside seats can truly be replicated, FB could take a cut of those sales as well.

Plus, with FB following Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) into healthcare with plans to make it “more social,” the Oculus Rift could easily gel with those visions.

Personally, I’m really excited for Oculus and the seemingly endless opportunities that come with it. The Oculus Rift could catapult FB stock higher as it evolves, and the reception of next week’s Sundance film is a baby step towards much bigger things.

Zuckerberg is just as excited, calling the Oculus Rift “a new communication platform.”

As of this writing John Divine owns shares of AAPL stock, GOOG stock, and GOOGL stock. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, http://investorplace.com/2015/01/oculus-rift-how-it-can-catapult-fb-stock-higher/.

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