It’s going to be a breakthrough year for virtual reality, and Facebook (FB) is part of the reason we’re making that prediction. Oculus, the company Facebook stock purchased two years ago for $2 billion, has finally announced the launch and price details of the much-awaited Oculus Rift.
Oculus announced in a Wednesday blog post that consumers can now preorder the Rift, shipping from March 28, for $599. And while there are obvious downsides from afar, this spells the beginning of a new era for Facebook stock. The benefits should start showing as early as this year.
Here’s how.
Oculus Rift Will Add Respectable Revenue to FB’s Top Line
If you know about VR, you’ll have heard that Oculus is the bellwether of VR. If nothing else, this should make us expect that most gamers will want to lay their hands on the Rift, thereby significantly increasing its market potential.
Yes, that’s only an educated assumption. So let’s go a little analytical. Travis Jakel, an analyst with Piper Jaffray, forecasted that 12.2 million-plus VR headsets would sell throughout 2016. And of that number, he forecasted that Facebook-owned Oculus Rift would sell 3.6 million units.
Here’s the beautiful thing about that. Going by the low-end Rift price forecast of $350, that would have been $1.26 billion in additional revenue for Facebook stock this year. However, the price came in higher. So going by that sales projection, Facebook stock could potentially have an additional $2.16 billion added to its top line.
Granted, that’s only a forecast, and FB might actually fail to hit that figure. However, the increased price has made the potential to achieve an additional $1 billion at minimum even more likely.
Let’s settle some arguments just to make it clearer that Facebook stock could have a hit with the Rift this year. Some critics are already saying Facebook stock is running at a disadvantage compared to a VR competitor like Sony (SNE). And they have solid points.
First they say, unlike Sony, whose Playstation VR headset will work perfectly on PlayStation 4, consumers will need a compatible PC to use the Rift effectively. And Sony has already sold about 36 million units of the PlayStation 4 console, meaning there’s a ready-made market for its headset. That’s an obvious disadvantage for Facebook.
Facebook Stock’s Market for Rift
First, I’d point investors who recognize opportunity when they see one to a line from Steve Jobs’ biography that says Steve Jobs refused to do market research because he believed that consumers don’t know what they want until you show them. And that has proven to be true with Apple (AAPL) — repeatedly. Point is, if Oculus Rift turns out to be that product that consumers never knew they wanted, they’ll easily buy one and find a way to use it.
And there’s more proof with Steam with regards to Windows 10 adoption — which, by the way, is an operating system that the Rift will be compatible with. Techtimes reported in November last year that Windows 10 adoption rate had been facilitated by gaming, according to data provided by Valve.
The point here, again, is if gaming could power the adoption of Windows 10 because of its effectiveness, Oculus Rift will make waves too, as long as it delivers on its promise of high quality — and all evidence so far says it will. This also suggests that the Rift will be an important revenue machine for Facebook over the long haul.
The critics also point to the fact there are only about 13 million existing PCs that can support the full VR experience, and perhaps, not all of the owners would be interested in the Rift.
Yes, the number of PCs already available for VR might be few. However, I would like to point out that with specifications like Graphics chipset / video card: NVIDIA GTX 970 / AMD 290 equivalent or greater and CPU: Intel i5-4590 equivalent or greater that the PCs have, those who already own these PCs are most likely gamers. And for them to be savvy enough to own such PCs, the Oculus Rift will be something about 20% of them would want to own. And even at 20% adoption rate for this class alone this year, Facebook stock could potentially add $1.56 billion in revenue.
Bottom Line for FB
As I have tried to show above, the Oculus Rift will be an important source of revenue for Facebook going forward, even by the critics’ standards. And as I have pointed out in a previous article, this only represents one of the many growth projects Facebook stock is working on.
While we wait for the release of the Rift, I believe Facebook stock is a buy at current levels.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
