Is Virtual Reality A Viable Investment?


Duncan Rolph

April 8, 2016

Bill Gates once stated, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” To put things in perspective, the first iPhone was introduced less than 10 years ago, the first consumer available GPS less than 20 years ago and the first digital camera less than 30 years ago.

In this decade, virtual reality may be the next largest stepping stone in technological innovation. Virtual reality refers to an immersive, computer-generated reality that provides the user an artificial sensory experience. The latest and most talked about virtual reality product is the Oculus Rift to be released this March, retailing for $599. This product was created by Oculus VR which was acquired by Facebook (FB) for $2 billion in Q1 2014. Sony’s Morphesus, HTC’s Vive, Samsung’s Gear, the Fove VR and other similar products have entered the market as competition against Facebook’s Oculous Rift headset. Retail values for these products range from $99 to $3,000 depending on the technical capabilities of the devices.

Will it flop like Google Glass?

Similarly to the augmented reality product Google Glass, virtual reality is a large step in technological innovation. Augmented reality has a lot to offer, but society was not ready to adopt the idea at the time that Google Glass was released. Google (GOOG) released the product May 2014 and withdrew it in January 2015, just 8 months after its release.

According to J.P. Gownder, an analyst at Forrester Research, “Google decided that they need to turn this product over to someone who knows how to bring a consumer product to market, both from a design perspective and a marketing perspective”. In comparison to the Google Glass, which marketed its product to the general public, the creators of the Oculus Rift are gearing its initial release towards a more specific target audience: gamers. A study conducted by the Entertainment Software Association (ESA) shows that “more than 150 million Americans play video games and … in 2014, the industry sold over 135 million games and generated more than $22 billion in revenue”. Focusing on a particular market to adopt new technology is much easier than focusing on a broad demographic.

The Oculus headset is projected to realize a loss in the tens of millions in the first year; however, according to Statista, revenues from virtual reality products and software are expected to spike from just $90 million in 2014 to $5.2 billion in 2018. Sony (SNE) and Microsoft (MSFT) combined were able to sell 50 million PlayStation 4 and Xbox 1 units within the gaming community alone. Statista estimates that there will be 171 million virtual reality headset users by 2018.

Statista projects a rapid increase in revenues from virtual reality products (hardware and software) over the next few years.

What investment opportunities will virtual reality create?

Wall Street initially hesitated at Facebook’s acquisition of Oculus VR on March 25; its share price sunk 7% the day after the public announcement. Facebook (FB) fell as low as 12.5% but recovered to an increase of 20% by year-end. It is not out of the ordinary for share prices to drop upon announcements of new technologies considering new technologies have not met sales expectations in the past.

Unlike Facebook, who entered the market early on, Sony and HTC have experienced a sharp increase in share price with their expected entry into the market. Sony’s share price increased 7.5% upon the announcement of its virtual reality headset and 30% since this February. HTC’s share price has increased 50% since February.

Facebook  and Sony both have appealing virtual reality products on the market and should be followed closely by those looking to profit on the new technology. Sony may experience high success over the Microsoft in the future because its headset is specifically being released as an add-on to their gaming system, the PS4. In addition to this, the Sony headset retails for $399 as opposed to the Oculus Rift’s $599 price tag.

Long term potential

Oculus may not be profitable in the short run, but the long term potential is too large to ignore. Since Facebook (FB) is the first virtual reality headset supplier in the market, it has the opportunity to establish a brand, study the market and explore alternative uses of virtual reality. As virtual reality functionality improves, it will have the capability of transforming any industry and thus create interesting investment opportunities.

This article was written by Duncan Rolph from Forbes and was legally licensed through the NewsCred publisher network.

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