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Facebook to Buy Beat Games, Ups Ante in VR Gaming Space

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Facebook (FB - Free Report) recently announced that it is acquiring Beat Games, developer of popular VR rhythm game Beat Saber. Beat Games will join Oculus Studios but will continue to operate as an independent studio from its Prague-based headquarter.

Although financial details of the transaction have been kept under wraps, the studio will continue to provide support to Beat Saber across all current platforms. The game is currently available for HTC Vive, Oculus Rift and Quest, and Microsoft’s (MSFT - Free Report) Windows Mixed Reality devices.

According to CNBC, Beat Saber is much similar to that of the Guitar Hero series. The game has players swinging their light sabers at incoming blocks in sync with the beat of a musical track.

Moreover, Beat Saber’s popularity has largely been driven by the availability of “modding” tools that allowed users to create their own songs with uploaded audio files (including pirated versions). According to a blog by Mike Verdu, director of content, Oculus, “modding” will continue only if it is done legally and adheres to Facebook’s policies.

VR Market Growth Opportunities Aplenty

Per IDC’s latest data, global spending on AR/VR is expected to be $18.8 billion in 2020, an increase of 78.5% from $10.5 billion estimated in 2019. VR Games ($3.3 billion) is projected to be one of the two large-use cases in terms of consumer spending in 2020.

Notably, per imarc projections, the global VR gaming market is expected to witness a CAGR of 25.5% over 2019-2024, hitting $40.2 billion by the end of the period.

The strong potential has not only attracted video gaming console makers like Sony (SNE - Free Report) , Nintendo (NTDOY - Free Report) and Microsoft but also tech giants, including Facebook, Alphabet (GOOGL - Free Report) division Google, Samsung, HTC, Lenovo and others.

Year-to-Date Performance

Facebook’s VR-based Ecosystem Aids Prospects

Facebook’s focus on expanding its footprint in the VR technology space has largely been associated with its hardware devices — Oculus Rift S, Rift and Quest.

However, VR headsets like HTC’s Vive and Vive Pro, Microsoft’s Windows Mixed Reality, Sony’s PlayStation VR, Samsung’s Gear VR and Google’s Daydream View are providing competitive pricing and features. This has intensified competition for Facebook’s devices.

Moreover, despite the strong buzz around VR tech’s growth prospects, lack of solid immersive game content is being blamed for the sluggish adoption of VR headsets.

The Beat Games acquisition is now expected to help Facebook counter this headwind. Notably, Beat Games is one of the few successful independent VR game studios having sold one million units of Beat Saber by the end of Mar 31, 2019.

Beat Games can now utilize Facebook’s resources to build better VR games. Additionally, a solid VR gaming content portfolio will eventually help the social-media giant to sell more of its Oculus VR hardware devices.

Moreover, Facebook’s focus on developing a VR ecosystem, comprising both hardware and software, is expected to provide it a lead in the space.

In late September, the company introduced Facebook Horizon, a social VR world where users can design detailed individual avatars to interact and create their own spaces, including tropical hangout spots and interactive action arenas, using World Builder, a collection of easy-to-use tools. The company is set to launch a closed beta in early 2020.

Notably, Facebook Horizon is expected to pose significant competition for Microsoft’s Minecraft and Second Life.

Google, Nintendo, Sony — Hard to Ignore

Despite Facebook’s aggressive stance, it would be foolish to ignore the initiatives of Google, Nintendo and Sony in the VR gaming/technology space.

Google has been acquisitive in the VR space, as reflected through the buyouts of painting software Tilt Brush and Owlchemy Labs, the developer of Job Simulator and Vacation Simulator.

Moreover, Sony is rumored to launch a PlayStation VR (PSVR) version alongside PlayStation 5 in 2020. Per The Sun, which quoted Dutch site Let’sGoDigital, the new PSVR is expected to feature a couple of motion-sensing controllers.

Further, Nintendo has been rumored to develop an accessory that can turn its Switch console into a VR headset, per Business Insider. Notably, Nintendo released its Labo VR Kit in April, this year.

Zacks Rank

Facebook, Nintendo, Sony and Alphabet currently carry a Zacks Rank #3 (Hold).

Microsoft has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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