Facebook Inc (NASDAQ:FB) has been on fire this year, with FB stock up a ridiculous 53%. But it’s several of Facebook’s emerging businesses that have captured my interest the most: video and virtual reality.
After the close Monday, Netflix, Inc. (NASDAQ:NFLX) reported its quarterly results. It beat on earnings, revenue, domestic and international expectations. More evidence of Netflix’s leading role cable cord cutting. And, more evidence of the potential for FB video to help deliver the death-blow to the traditional cable subscription.
There are several different models delivering video content these days, the first being Netflix model. This allows a company to build a streaming platform and pay for the rights to content. Some companies, like CBS Corporation (NYSE:CBS) and Time Warner Inc (NYSE:TWX) with HBO, already have their own content.
Then there’s the Facebook and Apple Inc. (NASDAQ:AAPL) model. They’re already highly successful in other businesses, but are looking to dip their toes into the video water. FB and AAPL are incredibly profitable, generate a ton of cash and know that a video budget is just a drop in the bucket. For as much as platforms like Netflix have shaken up the content consumption market, Facebook can be a total disruptor and really push consumers to cut the cord. It can do this because of FB’s enormous platform reach and deep pockets.
However, this may not kill Fox News, CNN, ESPN or others. In fact, despite its potential to push cord-cutting to new levels, it could actually be the saving grace for content companies. Is it really that hard to imagine our Roku Inc (NASDAQ:ROKU), Chromecast from Alphabet Inc (NASDAQ:GOOGL) or smart TV having a Facebook Watch app on it?
It’s not hard for me to picture it and all of these networks would still have the ability to show advertisements — Facebook’s bread and butter — if they’re included. FB may not go in this direction, but with more than a billion daily users, it has the power to become a focal point in video.
Reality for Oculus
Then there’s Oculus, Facebook’s virtual reality business acquired a few years ago. The market has quickly become divided: There are the cheap offerings that use smartphones to power them — think Google and Samsung Electronics Co Ltd (KRX:005930) — and there are the high-powered devices like Oculus and HTC Vive. The high-powered devices are expensive, anywhere from $400 to $800, but also require a powerful computer as well. However, earlier this month Facebook introduced Oculus Go, a $200 wireless VR headset that doesn’t require a smartphone or PC.
Some were quick to criticize, lamenting that the low price point and lack of PC hookup meant it wasn’t all that powerful. For the niche group of hardcore VR users, they can still get their hands on a high-powered setup. But the vast majority of consumers do not want to shop for their own NVIDIA Corporation (NASDAQ:NVDA) graphic chips for a super computer to power their $500 VR headset.
Instead, they want something that works better than Google Cardboard, but doesn’t cost an arm and a leg. That’s the role Oculus Go is intending to play. VR hasn’t gone mainstream yet, but CEO Mark Zuckerberg is looking to change that with the Go. His goal is to get a billion people using VR. While that seems like a lofty target — and it is — Facebook has some 2 billion monthly active users. Clearly, Zuck knows how to cater to the masses. Can he do it again?
VR, TV and FB Stock
It won’t be an easy road, but there is visibility. One can imagine Facebook TV being a reality. Oculus is already here and Go could propel the world (not just FB) into its new immersive frontier. With more people having access to VR, more content is sure to come. If it works the way it’s drawn up, it will create a self-propelling cycle where developers come to satisfy the growing industry and the industry grows as more new great content comes.
Perhaps FB will be the first meaningful player in integrating both video and VR. But in terms of financial impact, we’re still a ways off. Thanks to FB’s roaring core business though, including platforms like Facebook, WhatsApp and Instagram, growth remains steady. Snap Inc (NYSE:SNAP) has proven to be weak competition and Twitter Inc (NASDAQ:TWTR) seems to be playing a different game altogether.
All this has enable FB stock to hit new high after new high, the latest of which came on Tuesday. We have been bullish on Facebook stock for a while and I see little reason to part ways with it now. The valuation is high but reasonable given the company’s growth rate.