Facebook’s Oculus Acquisition To Take Years to Pay Off — Eventually Transforming Their Business Model

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a1While it’s tough to find an analysts who now thinks that Facebook made a mistake in acquiring Oculus back in 2014 for $2 billion, for investors it may be a long time before that investment finally pays itself off.  With hundreds of thousands of Oculus Rift headsets expected to ship by the end of 2016, one may have thought that such sales would have a material impact on Facebook’s expanding balance sheet.  This, however, will not be the case, at least for 2016, according to Facebook CFO David Wehner at the company’s Q1 2016 earnings call yesterday afternoon.

Although Facebook obviously expects to rake in the cash from their virtual reality ambitions down the road, the company understands that the technology is still in its infancy and that the market and ecosystem surrounding virtual reality has to expand naturally before the Oculus acquisition becomes truly profitable.

“We’ve got a lot of great content with more than 50 games and apps built for Rift. And again, this is very early and we don’t expect VR to take off as a mainstream success right away,” explained Facebook CEO and Founder Mark Zuckerberg on the earnings call yesterday. “I really want to emphasize that.  Most Rift early adopters are gamers and developers. But eventually we believe that VR is going to be the next big computing platform, and we’re making the investments necessary to lead the way.”

Analysts have speculated, thanks in part to comments made recently by Zuckerberg himself, that over the course of the next five to ten years Facebook will look to transition their users from 2D displays such as smartphones, tablets and PCs to virtual reality.  Eventually Facebook could connect individuals in a virtual environment in ways unimaginable to us all at the current time.  In order for this to happen the industry must expand, and with the reach that Facebook now has (over 1 billion daily unique visitors), they could certainly be the catalyst.  And while there will be little to no impact from VR on the company’s balance sheet this year, moving forward the potential is there for Facebook to realize tremendous revenue from VR hardware, games, videos and experience sales.

So in the meantime, as the company beats analyst’s expectations for yet another quarter, Facebook will likely continue to buy time as their Oculus division quietly expands, likely leading to one heck of a surprise down the road.  Are you a Facebook investor?  What are your thoughts on the current state of the company’s Oculus division?  Let us know in the Oculus Rift forum on VRTalk.com.

 

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