Oculus VR, which Facebook (FB) acquired in March this year, is providing software to Samsung’s Gear VR, a virtual reality headset that uses the Korean handset maker’s newly announced Note 4.
Per Bloomberg, Oculus is also discussing collaboration opportunities with Sony. However, unlike Samsung, Sony is a direct competitor of Oculus through its Project Morpheus. Hence, the chances of a potential deal between the two are significantly low, in our view.
Facebook completed the Oculus acquisition in July. Per CEO Mark Zuckerberg, virtual reality is the most promising form of social computing following mobile phones. Oculus intends to enable people to experience events together instead of individuals playing games separately.
In July, Oculus bought RakNet, which develops a game-networking engine that is open source in nature. This open source feature, in turn, enables other developers to see it, add to it as well as use it for free.
Facebook’s move into the emerging virtual reality market, a bold step in our view, is projected to bear fruit over the next 5 to 10 years. If Oculus’ technology succeeds in gaining mass adoption, it will help Facebook dominate the virtual reality market in the long haul.
Facebook will enjoy a first mover’s advantage, much like what Apple (AAPL) enjoyed in the smartphone market from 2007 to 2012. Facebook expects to focus on delivering Oculus technology as software and services rather than hardware, which is reflected in the recent Samsung partnership.
Facebook has gained significant traction in its mobile ad business within a very short span of time. This, combined with the massive user base and its ability to track personal details over time, makes it a formidable force in the online ad market.
Moreover, new products like Slingshot and FAN will help the company to grow ad revenues amid intensifying competition from Google (GOOGL) and Twitter (TWTR).
Currently, Facebook has a Zacks Rank #2 (Buy).
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