Oculus VR seems to be on an acquisition spree, right before
), with two acquisitions in a span of just about three weeks. After
agreeing to buy Carbon Design Group that had worked on
) Xbox360 Controller, Oculus recently acquired software startup,
RakNet for an undisclosed amount.
RakNet develops a game-networking engine, which is open source in
nature. This open source feature, in turn enables other developers
to see it, add to it as well as use it for free. Some of its
renowned customers include Unity, Havok and Sony Online
Earlier in March, 2014, Facebook signed an agreement to buy Oculus
for a sum of $2.0 billion. This acquisition is expected to close in
the second half of 2014.
Per CEO Mark Zuckerberg, virtual reality is the most promising form
of social computing following mobile phones. Oculus intends to
enable people to experience events together instead of individuals
playing games separately and we believe that RakNet will help
Oculus in achieving it.
Facebook's move into the emerging virtual reality market, which is
a bold step in our view, is projected to bear fruit over the next 5
to 10 years. If Oculus' technology succeeds in gaining mass
adoption, it will help Facebook dominate the virtual reality market
in the long run.
We believe that the successive acquisitions will enable Oculus to
add new features to its virtual reality headsets that will help it
to gain mass adoption. It will also help Facebook to extend the
virtual reality concept in other industries such as communications,
media and entertainment and education
Facebook will enjoy a first mover's advantage much similar to what
) enjoyed in the smartphone market during 2007-2012. Moreover, the
company's strategy of acquiring next-generation technology
strengthens its software developer talent base. This is significant
as Facebook expects to focus on delivering Oculus technology as
software and services rather than hardware.
However, Facebook's frantic pace of acquisitions and their
long-term growth prospects are major concerns for investors. In
order to calm investors' nerves, we believe Facebook needs to
maintain its ad revenue growth momentum, particularly in the mobile
segment over the next couple of years.
However, this may become difficult as the company continues to face
intensifying competition from Google and
) in the ad market. Moreover, Oculus will face
competition from Sony's Project Morpheus in the virtual reality
market over the long term.
Nevertheless, Facebook's growing mobile user base (more than 1
billion), Instagram's increasing popularity (200 million users) and
the new initiatives such as Internet.org will continue to boost
Facebook's share price in the near term.
Currently, Facebook has a Zacks Rank # 3 (Hold).
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