Despite the Hype, Virtual Reality Does Not Matter For Facebook Inc Stock

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When it comes to acquisitions, Facebook Inc (NASDAQ:FB) has an enviable track record. The deals for companies like Instagram and WhatsApp have been transformative. No doubt, they have been critical in propelling the FB stock price.

Despite the Hype, Virtual Reality Does Not Matter For Facebook Inc Stock
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But of course, there is one deal that has been a notable flub: the March 2014 purchase of Oculus VR for $2 billion. Here’s a case where FB really misjudged the market.

Just look at the press release. In it, Facebook CEO Mark Zuckerberg confidently boasted that “Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.”

Wow! Bring it on!

Unfortunately, the reality — actual reality, that is — has been much different. Despite substantial investments in the Oculus platform, sales have been a major disappointment. According to a report from IDC, FB shipped a mere 246,900 units during the third quarter even though the company has twice reduced their price. Facebook is currently the No. 3 player in the market behind Samsung Electronics Co Ltd (KRX:005930) and Sony Corp (ADR)(NYSE:SNE).

Why the lackluster performance? As IDC tells it, “Growth in the VR market has been rather sluggish compared to other recently introduced technologies as the amount of investment and, more importantly, the need for end user education is extremely high for VR.”

It also doesn’t help that there are few must-have applications and that using VR can often be unwieldy. If anything, there will probably be much more interest in augmented reality (AR) since this technology does not require a headset. Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOGL) have also launched their own AR platforms to make it easier to develop applications on mobile devices.

Getting to a Billion Users

Now FB is not throwing in the towel. Consider that Zuckerberg has set the goal of getting a billion people to use VR!

And to help this along, he has been innovating. The next product line innovation to hit the market — scheduled for early 2018 — will be the Oculus Go headset. The price tag will be at $199 and there will be no need to wire the device to a PC.

So will this be the silver bullet? It’s tough to tell. But the market is already saturated with headsets. Instead, to get more mass appeal and closer to that billion-user target, VR needs compelling content. Yet FB really has not been particularly good at doing this.

VR and the FB Stock Price

Despite all the problems with VR, I think its success is really not the fuel for the FB stock price. The company has many other businesses that should continue to drive growth, including:

 

  • Workplace: This is a social network for the enterprise market. Because users are already so familiar with FB, adoption has been strong. Just some of the marquee customers include Volkswagen AG (ADR)(OTCMKTS:VLKAY) and Wal-Mart Stores Inc (NYSE:WMT).
  • Marketplace: This is the Craigslist-style platform for selling goods and services. This service should provide a nice stream of transactions revenue.
  • Digital Food Ordering: This is done with partnerships with companies like GrubHub Inc (NYSE:GRUB), Delivery.com, and DoorDash.
  • Facebook Video: The company plans to invest $1 billion in premium programming for 2018.

But of course, assets like Instagram, WhatsApp and Messenger are still in the early phases of monetization.

Bottom Line on FB Stock Price Today

FB’s move into VR may ultimately pan out. The company has tremendous technical resources and distribution to become a leader. More importantly, the efforts with VR show that Zuckerberg continues to take a long-term approach.But in the meantime, investors in FB stock really have little to worry about. Besides the core ad business, the company is likely to monetize other key parts of the business.

It is also encouraging that FB stock is trading at about 27 times forward earnings. All in all, this is fairly cheap for a company that is a dominant player in the digital ad business.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/virtual-reality-not-matter-facebook-inc-fb-stock/.

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