Wall Street appears to be taking a wait-and-see approach on Facebook Inc.’s $2 billion cash and stock buy of Irvine startup Oculus VR Inc.
The price tag surprised many industry watchers, since the market for virtual reality is largely unknown.
Facebook founder Mark Zuckerberg has nonetheless said he believes it could become the future of computing.
Oculus has taken the technology world by storm since 2012, when it first demonstrated its groundbreaking headset, which immerses users in an interactive 3-D world. It has sold more than 75,000 units of early versions of the device at about $300 apiece, generating about $22.5 million in sales.
It has yet to disclose when it will release a much-anticipated consumer version.
Most buyers so far have been programmers and game developers.
Some analysts, despite the uncertainty, are backing Zuckerberg’s mission to connect everyone on the planet, largely based on his past successes. Facebook has more than 1.3 billion monthly visitors.
“While the acquisition is not expected to contribute any material revenues in the near-term and the success of virtual reality is clearly not assured, we like Facebook’s forward thinking strategy as it positions itself for the platforms of the future,” Raymond James & Associates analyst Aaron Kessler wrote in a recent note to investors.
RBC Capital Markets LLC analyst Mark Mahaney said Facebook was late to mobile, though it certainly caught up quickly, and that its latest buy may be as much about keeping competitors away as catching the next big technological wave.
“The question this time is whether Facebook is too early or simply betting on the wrong platform,” he wrote in an investor note. “We’re very familiar with the market cap creation by companies (Google and Amazon) that have successfully invented or acquired major new growth platforms and the market cap destruction by companies (AOL, eBay, and Yahoo at different historical points) that have missed major new growth platforms. Very hard to know whether virtual reality could be the next major Internet/communications platform, but a $2 billion bet doesn’t seem irrational for a company of Facebook’s size.”
