Facebook Inc (FB) And Oculus Deal: What Analysts Say

Facebook Inc (NASDAQ:FB) announced on March 25 that it will pay a whopping $2 billion to buy Oculus VR, which develops virtual reality technology. The deal mostly generated a negative response from Wall Street, though Mark Zuckerberg said that he is preparing the social networking giant for future technology. Facebook shares slumped 6.94% Wednesday to close at $60.38. The Menlo Park-based company will pay $400 million in cash, and the remaining in the form of about 23.1 million common shares valued at $1.6 billion. Oculus expects to close the deal during the second quarter this year.

Facebook Inc (FB) And Oculus Deal: What Analysts Say

Facebook and Oculus will together drive the development of the nascent market

Oculus VR develops a virtual reality gaming headset, the Oculus Rift. The company also sells development kits, and has already received more than 75,000 orders. The company is currently focused only on video gaming. But Facebook Inc (NASDAQ:FB) management has long-term intentions beyond gaming. Goldman Sachs analyst Heather Bellini says that virtual technology could be used as a next-gen communication platform. In the future, it can be used to study in a classroom with students from across the globe, consult with a doctor face-to-face, or watch a sports game virtually courtside.

Goldman Sachs says that the acquisition shows Facebook Inc (NASDAQ:FB)’s commitment to enable fast communication. Bellini says it may be the company’s emerging strategy to develop applications that appeal to users outside its social network. However, Oculus VR’s long-term vision is still unproven. But Facebook’s mass appeal and Oculus’ technology will together the drive the development of virtual communications market. Goldman Sachs maintains its Buy rating on the stock with a $78 price target.

Oculus makes up just 1.2% of Facebook’s market value

On the other hand, Jefferies analysts Brian Pitz and Brian Fitzgerald said that Facebook Inc (NASDAQ:FB) is betting that the virtual reality headset could become a major computing platform in the long-term. Oculus VR is focusing only on video gaming, but Zuckerberg aims to take it to broader applications such as education, communications and media. The technology is promising. But Pitz and Fitzgerald believe that a successful outcome is far from certain even in the gaming market, let alone communications and education.

Oculus VR accounts for just 1.2% of Facebook Inc (NASDAQ:FB)’s market value. So, it’s not going to change Jefferies’ bullish view on the stock. The research firm maintains its Buy rating with an $80 price target. Jefferies says that Oculus Rift is well ahead of any of its competitors. But many in the gaming industry don’t like its acquisition by Facebook. For example, Minecraft’s developer has trashed its plan to bring its games to Oculus Rift.

Why is Facebook interested in hardware interface?

Baird Equity Research analyst Colin Sebastian says that the purchase positions Facebook Inc (NASDAQ:FB) as an early leader in the field of consumer-ready VR applications. But this market will take years to develop. Sebastian views it as the social networking giant’s latest gambit in a broader platform battle with Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG).

Besides Facebook Inc (NASDAQ:FB)’s long-term ambitions, the deal will give Oculus more resources to develop and scale its platform more quickly. It’s still unclear why Mark Zuckerberg wants to own a hardware interface, but Sebastian says that software and services will become the key focus at Oculus in the future. Baird Equity Research maintains its Outperform rating on the stock with a $65 price target.

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About the Author

Vikas Shukla
Vikas Shukla has a strong interest in business, finance, and technology. He writes regularly on these topics. - He can be contacted by email at vshukla@valuewalk.com or on Twitter @VikShukla10

2 Comments on "Facebook Inc (FB) And Oculus Deal: What Analysts Say"

  1. The synergy is in the vision of creating many new “businesses” and capabilities that globally provide VR in ways are not even dreamed of by most of us. Imagine going to the Mall shopping, or group therapy, or to your doctor, without ever leaving your home. Imagine, immobile, aged folks left to die in nursing homes being able to hang glide, or scuba dive, or visit relatives etc, without ever leaving their chair. Family Christmas around the tree with the kids for our service men and women who cannot leave their duty stations. Play golf in the den till you get it right. The synergy is also in the scalability of Oculus and the enormous scale already in place with FB. And, really, lets not try to second guess genius leaders who have the hands-on daily knowledge of markets and trends we cannot possibly anticipate.

    Consider that computer sales are stagnating because there are few if any technologies (including Gaming) that demand quantum leaps of processing speed and storage. Now the best they can do to keep sales going is force us buy shitty new operating systems. VR, should drive the demand for huge leaps forward in bandwidth capability, networking efficiency, and new computer technologies.

    This is revolutionary, world changing, and I think we’ll like what happens.

    ologies technology.

    Listen to Zuckerberg when he says he is building a future for FB (and that will spin off thousand of new companies and jobs worldwide). I think the man knows exactly what he is doing.

  2. “study in a classroom with students from across the globe” It is good to have, but it is not FB business. I still do not see the synergy here.

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