One prominent Wall Street analyst thinks Facebook (FB) stock could soar another 45% from its closing price on Friday. And no, it’s not some no-name attention-seeker with an up-and-coming research outfit. It’s Gene Munster, senior research analyst for Piper Jaffray.
Gene Munster thinks FB stock could go to $120, increasing his price target steeply from $92.
While there are more than a few catalysts that could send Facebook stock higher in the near future, Munster cites just one behind his price boost: Oculus, the virtual reality company FB acquired last year.
Facebook Capturing Vital Early Lead in VR
Virtual reality is a trend that seems destined to catch on, if not for its intrigue then for the simple reason that other tech behemoths like Google (GOOG, GOOGL), Apple (AAPL), Sony (SNE), and Microsoft (MSFT) are investing in it alongside Facebook.
Call it a self fulfilling prophecy, but VR is happening and Facebook owns the company at the forefront of this exciting new technology. Calling Oculus an “insurance policy on the relevance of Facebook’s social portfolio as technology shifts,” Piper Jaffray’s Munster goes on to justify his $120 price target for FB stock, saying:
“The first consumer version of Oculus is expected in early 2016 and we believe investors will assign an incremental premium to FB as we get closer to the consumer launch.”
Importantly, FB has shown a willingness to team with other large tech partners like Samsung (SSNLF) on its Gear VR and MSFT, which will bring the Oculus Rift to the Xbox. Personally I think the latter will do a great deal to bring virtual reality to the mainstream — something that should be awfully nice for owners of FB stock.
But Remember … VR Is A Long-Term Play
I seriously doubt that Oculus by itself — which FB purchased for $2 billion last year — can justify the 45% upside to Facebook shares, a meteoric rise that amounts to an additional $63 billion in market capitalization.
At least, not anytime soon.
In fact, Munster himself only sees Oculus driving “incremental revenue as it ramps, but likely little in profit.” So why the big huff, then?
Although it may take a few more years to materialize, the far more exciting opportunity is Oculus’ non-gaming applications. FB CEO Mark Zuckerberg, who sees the Oculus Rift as “a new communication platform,” touched on his ambitious goals in his March 2014 Facebook post announcing the Oculus VR acquisition:
“After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a court side 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.”
Now if that doesn’t get you jazzed about he bright future ahead for VR, I don’t know what will. While I wouldn’t be surprised to see a nice little pickup in FB stock before the consumer version of Oculus hits the shelves, I’m still confident that the real benefits of Oculus will only be realized by long-term FB investors.
As of this writing, John Divine owns shares of GOOG stock, GOOGL stock, and AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
