Facebook Inc (FB) Holds 45% Upside Potential: Munster

Facebook stock has the potential to move up 45%, believes Gene Munster from Piper Jaffray. Munster raised his price target on the social network from $92 to $120.

Facebook Inc (FB) Holds 45% Upside Potential: Munster

Oculus more Android than iOS

Though Facebook Inc (NASDAQ:FB) has many catalysts to push its stock higher, Muster cites just one reason for his bullish view, and that is Oculus, the virtual reality firm Facebook acquired last year.

Terming Oculus an “insurance policy on the relevance of Facebook Inc (NASDAQ:FB)’s social portfolio as technology shifts,” Munster says that the first saleable version of the Oculus is expected to hit the market in early 2016, and going forward, investors could “assign an incremental premium to FB as we get closer to the consumer launch.”

Virtual reality is gaining in popularity, and this is evident from the fact that big tech firms like Google, Apple, Sony, and Microsoft are investing big in the technology. In addition, to ensure the success of the technology, the social network has not shied away from partnering with other major tech firms like Samsung (for Gear VR) and Microsoft (to bring Oculus Rift to the Xbox). Experts are of the view that a partnership with Xbox will help the technology go mainstream. Munster believes Facebook’s recent partnerships suggest that the company views Oculus as more of an Android product than an iOS one.

Facebook Inc (FB) positioned well to capitalize on VR

Munster does hint that Oculus will drive “incremental revenue as it ramps” but “little in profit.” So if it’s not going to contribute much to profits, then how it could help the stock with 45% upside potential? To this, the analyst answers that Oculus’ non-gaming applications provide a wider opportunity. In March 2014, Facebook CEO Mark Zuckerberg said he sees Oculus Rift as “a new communication platform,” saying, “After games, we’re going to make Oculus a platform for many other experiences.”

Citing discussions with buy-side investors, Munster says investors view Oculus as a product company and value it at around $5 billion. Munster acknowledges that their price target “may seem aggressive,” considering Facebook paid $2 billion for Oculus, but the analyst believes that, long-term, their price target is justified as the social network is in a good position to capitalize on VR technology.

On Monday, Facebook Inc (NASDAQ:FB) shares closed up 2.7% at $84.74, and year to date, the stock is up by almost 7%.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com

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