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Oculus Rift Co-Founder Palmer Luckey Resigns from Facebook

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Per Bloomberg, which quoted Facebook Inc. , Oculus Rift co-founder Palmer Luckey has left the social media company. Notably, Facebook acquired Oculus for $2 billion in 2014.

Palmer Luckey’s departure was due to a controversy during the U.S. presidential election in 2016. We note that he remained mostly aloof from the media since reports surfaced that he was financing a group that created anti-Hillary Clinton memes for the web.

Per Bloomberg, Facebook also distanced itself from Luckey on this issue. He also apologized via a Facebook post on Sep 23, 2016 and did not attend the company’s Oculus Connect conference to avoid “distractions”.

Moreover, in Jan 2017, Luckey testified in a lawsuit filed against Facebook by ZeniMax Media, which claimed Oculus “stole” its intellectual property to boost its own Virtual Reality (VR) research. Per Bloomberg, Facebook lost the lawsuit, with the jury awarding $500 million to ZeniMax Media.

We believe that Luckey’s departure will not have any major impact on the operations of Oculus, which recently (Dec 2016) split into two units. This was also evident from the share price movement. Shares declined a negligible 0.17% to close at $142.41 on Mar 30.

We note that Facebook has outperformed the Zacks Internet Services industry on a year-to-date basis. While the stock returned 22.4%, the industry gained 8.9% over the same time frame.



Oculus – Growth Catalyst for Facebook

According to research firm Superdata, the global VR market is estimated to be worth almost $38 billion within the next three years, twenty times of $1.8 billion in 2016. In 2017, the market is expected to grow to almost $5 billion, up 168% over 2016.

Further, per a recent IDC report, global revenues of the Augmented Reality (AR) /VR market are expected to grow at a CAGR of 181.3% from $5.2 billion in 2016 to over $162 billion in 2020.

Though in its infancy, AR and VR technologies along with artificial intelligence are considered the next big business opportunities in the technology space, which is also evident from the aforesaid projections.

Consequently, all the tech giants right from Facebook to Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) are pumping huge resources to develop the new technology.

We believe that Oculus is well positioned to tap this huge growth opportunity based on its expanding product portfolio, which now includes Rift as well as Motion Controllers (launched in Dec 2016). The company continues to invest in developing the product line and announced another $250 million investment to develop VR content ecosystem in Oct.2016.
 

Facebook, Inc. Revenue (TTM)

 

Facebook, Inc. Revenue (TTM) | Facebook, Inc. Quote

Moreover, the acquisition of Denmark-based startup, The Eye Tribe, will also boost product capabilities going forward. (Read More: Facebook Boosts VR Efforts with Eye Tribe Acquisition)

Conclusion

Oculus has long been dubbed as a big growth driver along with Facebook’s other product platforms like Messenger, Instagram and WhatsApp.  However, the technology is yet to live up to expectations that are far higher than its other platforms. This is a concern in our view.

Currently, Facebook carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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