Facebook Inc (FB) Stock Isn’t Really Getting That AR/VR Lift

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A little more than a year ago, as Facebook Inc (NASDAQ:FB) was making moves into augmented reality/virtual reality (AR/VR), I made the point that while the fledgling market wouldn’t be a game-changer for the value of FB stock, it was a decent-sized market worth exploring.

In retrospect, even my tepid appreciation for the opportunity may have been too much. AR/VR are getting off the ground at an even-slower pace than anticipated. While the forecast growth continues to look and sound compelling, it’s difficult to imagine how Facebook — or any other company exposed to the market — is going to be able to close the gap between here and there.

That’s a polite way of saying anybody who owns Facebook stock solely as an AR/VR play may want to go ahead and sell at the stock’s current high, as neither “reality” is matching its perception.

Growth is Slowing

In and of itself, the point isn’t terribly alarming. Indeed, that Facebook is looking to lower the price on its VR goggles from $600 for a high-performance version to only $200 for a standalone mid-grade version could be seen as the result of greater scale; per-unit costs get cheaper with the more you make. Thing is, the company has also already dropped the price of its higher-end Oculus Rift VR headgear a couple of times since unveiling them in March of last year.

As it turns out, demand (particularly from the video gaming arena) hasn’t been as firm as initially expected. Underscoring this letdown are the recent downward adjustments for the size of the AR/VR market.

Case in point: TechCrunch’s AR/VR market outlook for 2016 was $4.4 billion, but the industry was only worth $3.9 billion last year. That’s still a respectable size, but market research outfit eMarketer believes growth of the nascent business is already slowing. Usage growth (on a monthly user basis) is expected to dwindle from 109% this year to 64% next year to only 34% in 2019.

At this stage of the game, growth should be increasing.

Still a Novelty Item

It’s that sort of data which supports an increasing volume of skepticism around AR/VR, including a recent article by Barron’ contributor Emily Bary who writes:

“The broader population still doesn’t see a need for virtual reality because the use cases aren’t very compelling. Creating an art project in VR is an interesting novelty, for example, but you quickly realize that it’s a hassle to strap on a pair of heavy glasses to pretend-paint something that only exists in an imaginary world. While watching a VR movie, you can’t gauge your friends’ reactions because you’re completely absorbed in a headset.”

From that perspective, virtual and augmented reality is closely akin to 3D television and action cameras.

 

Practically nobody denies that GoPro Inc (NASDAQ:GPRO) makes the best action camera in the world. It’s just that that most of the world doesn’t need or even want to buy an action camera.

Ditto for 3D television. It’s a clever idea and technical marvel to be sure. But, most consumers are only passive TV watchers, and immersing yourself in it is anything-but-the-relaxing downtime the average person prefers. While AR technology on a phone or tablet has proven mildly marketable, fully immersive VR experiences that require headgear appear to be hitting the same headwind 3D television did — it’s just not that interesting for very long.

Bottom Line for FB Stock

To be fair, the creation of more games and more content will sell more VR equipment, and vice versa. Relative to the hoopla, though, virtual reality is off to an alarmingly slow start. That’s not a good sign.

That’s not to say FB stock is un-ownable here. It is to say, though, that one of the key bullish talking points prodding Facebook stock higher of late isn’t panning out nearly as well as expected. Investors will figure it out sooner or later, and make the necessary price adjustment.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/facebook-inc-fb-stock-investors-find-arvr-reality-doesnt-match-perception/.

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