FB Stock: Is This the Next Big Thing for Facebook Inc?

FB stockWhen Facebook Inc (NASDAQ:FB) acquired Oculus back in 2014, CEO Mark Zuckerberg said that its virtual reality headset, the “Oculus Rift,” would start out as an immersive gaming experience. But if his future plans for the device become a reality, look for big things to happen to FB stock.

Zuckerberg said that games are just the start. He wants to use the headset as 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,” Zuckerberg said. (Source: “Mark Zuckerberg,” Facebook Inc, March 25, 2014.)

On the day Facebook announced it purchased Oculus for $2.0 billion, Zuckerberg told reporters that the company was making a long-term bet that virtual reality was going to become an everyday part of our lives and that it has the potential to become the most social platform ever.

Two years ago, that concept may have seemed farfetched, but today, virtual reality is moving closer to Zuckerberg’s vision.

The company recently announced that it formed a “Social VR” team to build technology that will enable people to engage with Facebook’s network and have social experiences in virtual reality. The team will work on the Oculus devices, while also trying to anticipate future platforms.

Facebook said that its social VR tools will allow friends in different parts of the world to feel like they are hanging out in the same room. Zuckerberg envisions a day where a pair of lightweight glasses will allow users to shift between the virtual world and real life. The glasses would allow users to play virtual games with friends, as well as scroll through Facebook newsfeed stories and pictures.

A bit of that social virtual reality can be experienced today, as Oculus has already started to incorporate social networking into its devices. “Social Alpha” is a group chat tool that is incorporated into the “Gear” VR headset, a device Facebook made with Samsung Electronics Co Ltd (KRX:005930). Users are transported to a virtual room with others from all over the world, where they can have a conversation and even watch a movie together.

Gear VR users can also play two new social games that were recently added to the Oculus app store, which adds support for up to four players.

Facebook recently launched 360-degree videos that can be accessed on desktop computers and mobile devices. Gear VR users can directly connect to a Facebook account to personalize a feed of 360-degree videos.

So why does virtual reality matter to Facebook?

Virtual reality is one of the hot topics in tech and it looks like the technology is about to skyrocket in growth over the next few years.

A recent report forecasts the number of virtual reality devices sold will reach 2.5 million in 2016, 12.0 million in 2017, and 24.0 million in 2018. The same report says that by 2018, virtual reality devices will become a $4.0-billion market. (Source: “Augmented and Virtual Reality Devices to Become a $4 Billion-Plus Business in Three Years,” CCS Insight, last accessed March 21, 2016.)

Piper Jaffray analyst Gene Muster is much more optimistic. He forecasts that sales of VR headsets will grow from 12.2 million in 2016 to 100.2 million by 2020. (Source: “Samsung Giving Away Gear VRs with Galaxy S7 Pre-Orders,” Fortune, February 22, 2016.) Muster forecasts that in 2016, Gear VR headsets will account for about five million headsets sold, while the Oculus Rift will account for about 3.6 million of sales.

And here’s one last forecast: according to a research note from Goldman Sachs, virtual reality could become an $80.0-billion industry by 2025. (Source: “Virtual Reality Could Become an $80 Billion Industry: Goldman,” CNBC, January 14, 2016.) Of that, $45.0 billion will come from hardware sales and $35.0 billion from software sales.

If virtual reality catches on with consumers, we know that virtual reality will be huge and Facebook will benefit. However, a host of companies are also jumping into the game. Samsung has already shipped its Gear VR, Sony Corp will be releasing its “PlayStation” VR headset later this year, and Microsoft Corporation (NASDAQ:MSFT) is working on its “HoloLens.”

But Facebook, so far, is ahead of its rivals. According to the Game Developers Conference’s 2016 State of the Industry Survey, 19% of the game developers polled said they are developing games specifically for the Oculus Rift. (Source: “Facebook’s Oculus Rift Is Tops With VR Game Developers As Virtual Reality Gets Real In 2016,” International Business Times, January 20, 2016.) That’s the highest number devoted to a single platform.

Facebook may also have the upper hand among its competitors long-term. Facebook has about 1.6 billion monthly active users that the company can easily market its Oculus Rift headset to.

The Bottom Line on Facebook Stock

Facebook has clearly established itself as one of the frontrunners in virtual reality. If VR truly becomes a big part of our everyday lives, as Mark Zuckerberg envisions, Facebook may transform into a virtual social network. The Oculus Rift has the potential to be a major growth driver for Facebook one day, which is good news for FB shareholders.