Wall Street Likes Virtual Reality Despite Absence Of A 'Killer App'

Facebook announced a 50 percent price reduction for its Gear VR (mobile VR solution) headset to $99 during its Oculus Developer Conference. The company also announced new partnerships with Dell, Alienware and Asus to bring sup-$1,000 computers to the market that is compatible with Oculus Rift.

Gene Munster of Piper Jaffray commented in a note that Facebook is "building momentum" for its VR content. The analyst pointed out that Oculus has partnered with Netflix, Hulu, Tivo, Sega and Midway to bring their content into Gear VR. However, the "cinema" aspect is unlikely to appeal to a mass market as many home movie viewers prefer to have the flexibility to watch their phone at the same time. Munster is projecting Facebook will sell three million Oculus units which will add $1.2 billion to 2016 revenue at a "thin" 10 percent gross margin which will add about one percent to the company's pro forma earnings. Shares of Facebook remain Overweight rated with an unchanged $146 price target.

Ben Schachter of Macquarie Research commented in a note that he is "very bullish" on the potential for virtual reality and augmented reality to be the "next major computing platform" even though it will take time. Schachter continued that mass adaption of the technology won't begin until 2017 and will encompass entertainment, enterprise, communications, health care, and will eventually "impact almost all industries." Nevertheless, Schachter commented that despite some "interesting" demonstrations during the Oculus conference, the industry is still void of a "killer app." "We consider ourselves perhaps the most bullish analysts on VR/AR, but are still waiting to see that platform driving application," Schacther concluded. Shares of Facebook remain Outperform rated with an unchanged $106 price target.