Facebook Inc. (FB - Free Report) announced a partnership with Chinese smartphone maker Xiaomi to launch its next generation of virtual reality (VR) products at the 2018 Consumer Electronics Show in Las Vegas.
Facebook revealed that Xiaomi, apart from being the hardware partner of its cheaper VR headset – Oculus GO – unveiled last October, will also develop new VR headset called Mi VR Standalone exclusively for the Chinese market. Both the products are based on Oculus technology and powered by Qualcomm’s (QCOM - Free Report) Snapdragon 821 Mobile VR Platform.
Facebook’s vice president of VR Hugo Barra, who worked previously for Xiaomi, revealed that the new product is similar to Oculus Go in terms of core hardware features and design. Apart from that, it also supports Oculus's mobile software developer kit, thereby making it easier for Oculus developers to bring their content to the Mi VR Store in China.
We believe that Facebook’s attempt to diversify will help the company penetrate the world’s most populous market, where its main service has been blocked since 2009. Facebook's target to bring a billion people to use VR in the near future is expected to be aided by this.
Notably, Facebook has gained 50.8% in the past year, substantially outperforming the industry’s 26.8% rally.
Facebook’s VR Efforts
Facebook’s focus to expand its VR capabilities is well reflected in Barra’s words who was quoted saying, “We’ve worked closely with Qualcomm to deliver the highest possible level of performance to meet the high computing demands of the standalone VR product category.”
We note that Facebook is trying to fuel its ambitious AR/VR efforts with Oculus which it had acquired for $2 billion in 2014. Oculus has long been dubbed as a multibillion dollar opportunity along with Facebook’s other subsidiaries like Messenger, Instagram and WhatsApp.
The company’s CEO, Mark Zuckerberg, said that Facebook will spend over $3 billion to build these technologies over the next 10 years. Zuckerberg believes that VR will emerge as a major computing platform in the coming years.
Oculus GO, which carries a price tag of $199, will be shipped this year, per the company.
Last October, following mixed reviews from critics and users, the company slashed the price of its other VR headset, Rift.
Zuckerberg was quoted saying last February that the virtual reality efforts aren’t profitable now. However, he asked the investor community to be patient as investments in VR will take some time to generate profits.
Apart from headsets, Facebook’s VR offering include Facebook Spaces. Spaces will enable users to connect with family and friends in an interactive virtual environment. Users can create their VR avatar and customize it to make it look like them. The app will not only help to create a virtual world but also keep users connected to reality by enabling Messenger calling.
Given the massive growth potential, there is tremendous interest in AR/VR. Right from Facebook to Alphabet to Microsoft, all are pumping in resources to develop these technologies. According to an IDC report, global revenues from the AR/VR market will grow to a whopping $143.3 billion by 2020.
Zacks Rank & Other Stocks to Consider
Facebook carries a Zacks Rank #2 (Buy).
Some of the other top-ranked stocks in the broader technology sector are NetApp Inc. (NTAP - Free Report) and NVIDIA Corporation (NVDA - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Long-term earnings growth rate for NetApp and NVIDIA is projected to be 11.3% and 10.3%, respectively.
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