VR Is Finally Here To Stay, And Facebook Is The Big Winner

Seeking Alpha2021-09-10

Summary Facebook is one of the leading players in the fast-growing AR/VR industry. Thanks to its early mover advantage and access to data, Facebook is set to continue to dominate this segment. I ...

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MRRICH
2021-09-10
MRRICH
Nice

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVR Is Finally Here To Stay, And Facebook Is The Big Winner\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-10 14:44 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4454377-vr-here-to-stay-facebook-winner><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nFacebook is one of the leading players in the fast-growing AR/VR industry.\nThanks to its early mover advantage and access to data, Facebook is set to continue to dominate this segment.\nI ...</p>\n\n<a href=\"https://seekingalpha.com/article/4454377-vr-here-to-stay-facebook-winner\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4454377-vr-here-to-stay-facebook-winner","article_id":"1176988571","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1176988571","pubTimestamp":1631256259,"sourceInfo":null,"weMediaInfo":null,"summary":"Summary\n\nFacebook is one of the leading players in the fast-growing AR/VR industry.\nThanks to its ea","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"VR终于来了，Facebook是大赢家","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FB":0.9},"content_text":"Summary\n\nFacebook is one of the leading players in the fast-growing AR/VR industry.\nThanks to its early mover advantage and access to data, Facebook is set to continue to dominate this segment.\nI estimate the potential revenues Facebook stands to gain and how this might affect today's stock price.\n\nkatleho Seisa/E+ via Getty Images\nThesis Summary\nFacebook, Inc. (FB) is a dominant player in online advertising, but it also has very interesting growth initiatives, such as fintech, which I talked about here, and Virtual/Augmented reality. Mark Zuckerberg has made some ambitious claims about VR, and while this is still early days, it's easy to picture a world where VR is widely adopted at a consumer level. Furthermore, the possibilities for monetization are very wide, making this a great area for Facebook to expand its reach. In this article, I discuss these monetization avenues and quantify how this segment could affect Facebook's revenues and share price.\nVirtual Reality is a Reality\nThe promise of a virtual reality has been on the table for close to a decade, but like many pipeline dreams, it was for many years just that, a dream. However, one of the largest tech companies in the world, Facebook, led by one of the most significant visionaries of our time, Zuckerberg, decided to become a key player in this segment. For some time now Facebook has been developing AR/VR through its Oculus and Oculus 2 headsets in the shadows, but it will soon become much more than a fun little side project.\nVR and AR could potentially reach billions of people in the next few years, and completely reshape the way we think about the day-to-day human experience. According to recent research, the VR market could grow to $184.66 billion by 2026. This implies a CAGR of 48.7% over the coming years.\nVR/AR is no longer a fantasy and has the potential to unlock billions in wealth to those companies that have had the necessary foresight to invest in it. The applications for VR are close to limitless. Gaming is a big one, but so is health, education and entertainment. It comes down to gathering a critical mass, whereby everyone is somehow able to lock into this new technology. This is exactly how Mark Zuckerberg sees it, who recently claimed that VR could one day reach the scale of phones and PCs.\nThe question we must answer, therefore, is who are the key players in the VR industry? And how much could they stand to make from it?\nMarket & Competition\nThe big question is just how much does Facebook stand to gain from the increased VR/AR adoption. As I've mentioned before, this industry could see significant growth, over 48% CAGR, in the coming years. But just how well-positioned is Facebook in terms of the overall market and competition?\nSource: Statista\nThe above chart from Statista shows how the current market share, in terms of VR Shipments, has evolved over the 2017-2019 period. Firstly, it's worth mentioning that Sony leads the pack. This stands to reason, given the fact that the company's main business is gaming. Sony can easily market its VR headsets as an extension to their blockbuster PS5 console.\nHaving said this, notice that Facebook is the second-largest player, and has captured even more market share in recent years. In fact, the Oculus 2 has enjoyed worldwide success, selling a cumulative 4.6 million units as of the first quarter of 2021. This in fact seems to prove that the current move is towards standalone headsets rather than add-on type VR headsets.\nThis also begs the question of how exactly VR is going to be monetized, and the answer might help us understand why Facebook decided to get into this segment in the first place. Sales of VR units is the most obvious form of monetization but is probably just the tip of the iceberg. The incredible success of the Oculus 2 has been a great boon not just for Facebook, but for developers of the Oculus Store, which are developers that create apps specifically designed to be used through the Oculus headset. Facebook has reported that over $150 million worth of Apps has been sold since the 2019 launch of Oculus Quest 2.\nTherefore, we can think of VR and Oculus as similar to the Play Store and AppleInc.'s (AAPL) Apple Store. However, the other big avenue for monetization for these apps is advertising, which Facebook is the undisputed king of. In fact, Facebook is already trying this out and will be looking at user feedback to determine its success.\nSo who are Facebook's main competitors? Sony clearly has a strong footing in the industry, but it's geared towards gaming. In the future, it's much more likely that Facebook will have to compete with the likes of Apple and even Alphabet Inc. (GOOGL). Apple is reportedly already working on its own rendition of the VR headset. However, I believe that Facebook is in a great position to maintain and even increase its market share going forward. The company has an early mover advantage and also has a lot more earnings potential thanks to its access to data that it can use for advertising. Competitors like Apple may be able to design a slick and stylish headset, but Facebook already has a thriving ecosystem of users and developers.\nForecast and Valuation\nThe aim here is to evaluate the impact that the future of VR can have in terms of Facebook's overall valuation.\nFirst of all, it is worthanalyzing whether such a large potential in the VR market is already priced into Facebook's current market capitalization.\nLet's take a look at the valuation multiples. These can be found on FB's Value tab here on Seeking Alpha. The price to sales ratio is around four times as much as the sector median. This suggests one or more of three factors: more growth is expected than for competitors, earnings margins are higher, and/or the perception of risk is lower.\nIf we take a look at the price to earnings ratios, they are only between 20% and 40% higher than the sector median, so we can see superior profitability already accounts for most of the difference in the sales multiple. 20-40% might seem like a lot, it is actually cheaper by this measure than any other FAANG stock except for Apple so it can be put down to the size, market power and financial solidity that characterize these companies.\nIn terms of growth, we can compare the PEG ratio to the sector median. If we look at this measure Facebook is actually cheaper than the sector median, at least by non-GAAP figures. The fact that the company is more expensive than its peers by the PE ratio but cheaper by the PEG suggests that they are expected to underperform the sector in earnings growth.\nAlthough it is not entirely conclusive, I believe that Facebook's current market valuation does not price in a VR-related revolution, or at least not one that has a meaningful impact on the bottom line.\nSo if the eruption of VR is yet to be priced in, how much is the Oculus business worth? Facebook's current enterprise value is just over one trillion USD.Facebook purchased Oculus in 2014 for 2 billion USD. This included $1.4bn worth of shares priced at 69$ which are worth $8.8bn today.\nThere are two things we are looking at here, sales of devices and app revenue. If we take smartphones as an example, unit sales grew at an accelerated pace from 2007, slowing down to a plateau around 2015. In that time sales have grown from 122 million units to the 1.5 billion region.\nSource: Statista\nAn Oculus VR set sells for as low as $300, making it fairly similarly priced to an average smartphone if we look at global statistics. If we take this price and assume the unit sales of VR headsets can plateau at a similar level as that of smartphones, we can make a hypothesis for Oculus revenues from device sales. However, we need to set a time horizon too. For that purpose, we can look at a forecast for the number of VR sets sold annually worldwide until 2024 and see how long the trend would need to continue until it reaches around 1.5 billion units.\nSource: Statista\nIf we assume sales continue on an exponential growth trend, which fits the forecast above, we get an annual growth of about 33% and reach the plateau level of 1.5bn units by 2041. That is very far into the future, and just a hypothesis, but every year that the growth ratematerializes makes it more likely that the prospect will affect current valuations.\nSource: Author's work\nOnce we have a projection for unit sales worldwide, we need to estimate revenue per unit and Facebook (Oculus) market share. We can use the current price of 300$ per unit as an estimate, and base the market share on what is currently the case. A few months ago, it was reported that Oculus was expected to account for 87% of VR headset sales worldwide.\nIn terms of app revenue, we have estimated that it is in the same proportion as mobile app revenue is to smartphone device revenue. Mobile app revenue was around $111bn while device revenue was about $474bn, so we will assume app revenue is an additional 23% of device revenue at the plateau level. Mobile app stores not only provide additional revenue but also contribute to maintaining growth as device sales slow down. You can see this if you compare the following chart showing mobile app revenue with the one above showing unit sales in the same years.\nSource: App Revenue Data (2021) - Business of Apps\nTo value this business we are going to use a price to sales ratio. As a reference, we will use Apple's PS ratio, which is currently 7.6. This is because I believe it is the most comparable type of business to what we arehypothesizing Oculus might become, an established seller of devices with its own associated app store.\nIf we put together all the assumptions discussed, we come up with a forecast for the market size and Facebook's revenues from Oculus both from sales of devices and from applications. From the revenue, we forecast the value of the Oculus business applying the 7.6% sales multiple as discussed. Since the time horizon is very long and a lot needs to happen, a generous discount rate needs to be applied. We are showing below the present value of future states of the business in the 15-25% discount rate range.\nSource: Author's work. Items in $millions\nThe longer the growth materializes, the higher the present value of the hypothetical future business is. As you can see, by these calculations of where Facebook's VR segment could be in the future, a value of $34bn to $197bn could be justified at present. This would represent an addition of between 3.4% and 19.7% to the current market capitalization.\nTakeaway\nBased on this forecast, I feel like there is a growth potential put there for Facebook that the market may not be pricing in. VR/AR has gone unnoticed for years, but it is slowly picking up steam. If Zuckerberg is right, and these headsets become as prevalent as phones, Facebook could become a leading player in a fast-growing and profitable industry. Facebook has been playing the long game, and will soon be reaping the rewards.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":883523782,"gmtCreate":1631257120546,"gmtModify":1676530510765,"author":{"id":"3582792409142285","authorId":"3582792409142285","name":"MRRICH","avatar":"https://static.tigerbbs.com/35ba916bd4fa84b460ff38eee7294c37","vip":1,"crmLevel":8,"crmLevelSwitch":0,"idStr":"3582792409142285","authorIdStr":"3582792409142285"},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/883523782","repostId":1176988571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":17,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1176988571"}