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Shares of Menlo Park, California-based social media behemoth, Facebook Inc. (NASDAQ:FB) are having an impressive run this year. FB stock of late has been creating new all-time highs and has returned YTD gains of around 24%. Facebook stock has handsomely beaten the broader markets this year and the analyst community is still further bullish on FB stock. The meteoric rise of FB stock has largely been on account of its success in playing it right on major mega-trends say social, mobile and now video. In fact, Facebook stock could also be one of the best plays on the video mega-trend as well. However, there is one more promising space which is expected to be a multi-billion dollar mega-trend going ahead, Virtual Reality (VR). And, Facebook Inc (NASDAQ: FB) stock could be your best long-term play on VR. Here's Why.
Facebook is in a position to influence where VR industry goes next.
Facebook's VR system Oculus Rift yesterday turned one year old. For many Facebook's $2 billion acquisition Oculus has been the poster boy of VR. However, the acquisition has not yet delivered anywhere near its full potential and of late has been hit by an excessive amount of bad press, which has not helped its cause. We are looking at a technology which is still far away from its full potential and Facebook also has been very proactive in making moves in the VR space beyond its Oculus vehicle. Till now VR has largely been used for gaming and other entertainment content but Facebook CEO, Mark Zuckerberg, who is quite bullish on VR in the long-term, thinks VR can be opened to many other unimaginable things. In an interview with Bloomberg last year, Mark Zuckerberg opined about VR that "This is early, and it’s going to be a long-term thing. This is a good candidate to be the next major computing platform. It’s worthy of a lot of investment over a long period."
Mark Zuckerberg's bullish future outlook on VR gets a further boost, as IDC research estimates that "the combined VR/AR market would be growing nearly tenfold from 2016 to 2021, to 99.4 million units by the end of that time frame". IDC research manager Ramon Llamas expects consumer side demand (mostly by gamers) to remain dominant, going ahead, but sees new emerging market needs which can be addressed by companies like Facebook. This resonates with Mark Zuckerberg's view of VR as a next gen computing platform.
Facebook is leading the way how VR industry shapes up for times ahead. As a TechCrunch post highlights, Facebook has successfully promoted a robust community of VR developers alongside selling their consumer headsets which are state of art in quality. Facebook has started efforts towards bringing a social virtual reality experience and the company also introduced an app recently to host its 360-degree videos on the Gear VR mobile platform. The above post also points out that Facebook's nearly two billion users could be the key to the success of its VR push when technologies like WebVR become mainstream. For the social networking giant, Oculus now serves as a good platform to work towards it.
Facebook is also reported to be funding game developers for the VR platform in a big way. The Rift headset still lags the Xbox and PS4 VR headsets by some distance, based on units sold. However, as the above TechCrunch post highlights, AAA game studios, which is one of the game developers for Facebook's Rift, would not be doing so if the numbers were not substantial. We are yet to see the latest sales numbers of Oculus Rift headsets. However, Zuckerberg continues to invest more in this space with $250 million already invested in content developers and also announced at the Oculus Developer Conference that another billion is on the way.
Many see Facebook having an advantage in social VR but there is heavy competition in the VR gaming space. The social networking giant is leaving no stone unturned to lead in the hardware space as well with its latest investments. Mark Zuckerberg, in the company's latest earnings call, asked investors to be patient. To quote him: "I don’t think there really is a strategy to pull this in from ten years to five, I just think it’s going to be a ten year thing. I would ask for the patience of the investor community because we’re going to invest a lot in this and it’s not going to make a return or be profitable for us for quite a while." He certainly sees VR opportunity as a long-term play.
VR is another long-term reason to buy FB stock.
The VR market is expected to be around $70 billion by 2020. This presents a huge opportunity for Facebook (NASDAQ:FB) to capitalize on but is yet to take off. It is expected that Facebook will not generate much revenue from VR hardware in the near-term, but going ahead, app revenue on the VR platform could grow massively for FB stock to benefit, especially social VR. Facebook looks like a good play on VR with its sound level-headed strategy for the future. Another Motley Fool article also considers FB stock as one of the top 3 VR stocks. These are still early days for VR market development but if the research projections and estimates are anything to go by, and given Facebook's track record to play it right with respect to mega trends, FB stock could be a worthy long-term bet on VR. Facebook has been a part of our Top Stock Picks from the technology sector, which have outperformed the NASDAQ by over 134%. If you're looking for stocks from the auto sector, you can take a look at Amigobulls' top auto stock picks, which have outperformed the S&P 500 by about 170%.