Why FB Stock Could Surge in 2016
Here at Profit Confidential, we’ve been incredibly bullish on Facebook, Inc. (NASDAQ:FB). My colleagues and I have previously written about the extraordinary potential of FB stock, especially as it relates to virtual reality (VR).
Facebook was the first major player to break ground in VR when it bought a little startup called Oculus VR, which makes “Oculus Rift,” a VR headset. The deal was staggeringly expensive for a company that was relatively unknown—in fact, it cost Facebook a jaw-dropping $2.0 billion.
You may think that’s a lot of money to spend on a product with no demonstrated success, but believe me, Mark Zuckerberg knows what he’s doing. This guy has proven to be an extraordinary CEO. And he saw limitless potential in virtual reality technology.
And after a year or two, everybody else caught up. You know the winds have officially shifted when Goldman Sachs estimates that the VR market could be worth $80.0 billion within a decade. Our trust in Zuckerberg’s intuition paid off. (Source: “Mark Zuckerberg talks about the future of Facebook, virtual reality and artificial intelligence,” Business Insider, February 28, 2016.)
But our analysis of Facebook’s VR play has underemphasized one point.
We’ve focused squarely on the Oculus Rift because it was the foundation stone of modern VR; the gold standard of immersive experiences. But it’s important to note that Facebook has hedged its bet on the Oculus. Mark Zuckerberg has an ace up his sleeve.
Facebook Hedges its VR Bet
In addition to Oculus Rift, Facebook is also crafting software for Samsung’s “Gear VR.” It may strike you as odd for a company to compete with itself. Why would Facebook invest all that money into Oculus and then help a rival build their own version?
Mark Zuckerberg was asked this exact question in a recent interview. The reporter asked: “And with Oculus Rift you are also developing the technology that you are now delivering to Samsung for the Gear rollout—is that correct?” (Source: Ibid.)
Definitely, said Zuckerberg, “And Gear will probably ship many more units than Rift… They are different price points and quality.” (Source: Ibid.)
What he means is that Oculus costs around six times as much as the Gear VR. Samsung’s device is designed for the casual user, allowing them to strap a VR-enabled smartphone to the front. By contrast, you’d need a really powerful computer to run the Oculus Rift.
“VR is a very intense visual experience and having the most powerful PC is the only way to deliver certain experiences,” said Zuckerberg. “The technology needs to be fast enough so that when you do something, it triggers and sends that action all the way across the Internet to someone else.” (Source: Ibid.)
There’s an important distinction here. Serious techies would probably shell out for the Rift, either because they already have powerful computers or because they’re willing to spend the extra dough. Your average Joe isn’t going to blow $1,000 to upgrade his computer for VR purposes.
By tailoring two products for different markets, Facebook is cementing its position in the sector. They are “virtually” guaranteed huge profits from the industry. All good news for FB stock.
The company is anticipating mass adoption of VR within 10 years—the same length of time smartphones took to really take off. The “BlackBerry” was launched in 2003, but the market only reached scale in 2013. VR looks destined to follow that trajectory.
The big winner in the smartphone market was the “iPhone.” It was an early trendsetter in both style and functionality. The share price of Apple Inc. (NASDAQ:AAPL) soared as smartphones became an indispensable part of our daily lives. With VR positioned as the next transformation, FB stock could see a similar spike.