Facebook Inc (FB)’s Oculus Pickup Could Secure Its Long-Term Destiny

Sterne Agee analyst Arvind Bhatia weighs in with comments on Facebook Inc (NASDAQ:FB)’s aquisition of Oculus VR, and what it could mean for the social networking giant.  The analyst sees some interesting long-term positives coming from this move.

Facebook Inc (NASDAQ:FB)’s acquisition of virtual reality company, Oculus VR, is strategic and is aimed at the future of computing and the future of the web. Facebook believes virtual reality has the potential to become the most social platform ever in the next five to ten years as the world evolves beyond the mobile platform. We think the rationale is if Facebook can own the pipe, the platform or the operating system of the future, it will have much greater control over its destiny.

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Facebook Inc (NASDAQ:FB) announced the acquisition of Oculus VR, a virtual reality technology startup for $2B in cash ($400M) and stock (23.1M shares valued at $1.6B) with potential earn-out of $300M in additional cash and stock. The acquisition is expected to close in 2Q’14. We believe Oculus has some of the most talented people in the field. The acquisition is not expected to impact revenue in the near term.

Applications & Facebook’s Vision

Oculus VR has been getting traction in the gaming industry and at the recent Game Developers Conference (GDC) this year, virtual reality in general and Oculus VR in particular, received a lot of attention. Already, 75,000 developer kits (DK2) have been requested by various developers keen on applying the technology to gaming. While gaming will be the near-term opportunity for Oculus VR’s technology, Facebook envisions applications in other forms of entertainment and communications with the ultimate goal of helping it become “the most social platform ever.”

Business Model

On the conference call held to address the acquisition, Facebook Inc (NASDAQ:FB) made it clear that while Oculus VR’s Rift virtual reality headset is becoming popular with developers, ultimately, the business model would generate revenue through software and services and also advertising.

Update on Instagram and Facebook metrics

During the conference call, while highlighting the success of the Instagram acquisition, Facebook Inc (NASDAQ:FB) also disclosed that Instagram now has 200M monthly active users, up from 150M monthly active users in fall 2013. Also, Facebook now has 1B monthly active users on mobile, up from 945 million in December 2013.