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Facebook (FB): Innovating the Worlds of Virtual and Augmented Reality

Man holding a virtual reality set
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“In the future, it will be AR and VR that bring us closer. The devices that connect us will be less distracting and more intuitive. In this future, we will live eyes up, connected to each other and the world around us. As our tech melts away, so will the space between us.” ~ Facebook

With the power to bridge the gap between the digital and real world, Augmented Reality (AR) and Virtual Reality (VR)—mostly associated with gaming—are fast expanding into productivity, education, healthcare, and services. Here’s a look at Facebook’s (FB) initiatives in AR and VR.

Facebook made its move towards AR and VR many years ago. In 2014, the company acquired Oculus VR, a leader in immersive VR technology for approximately $2 billion. Facebook began to work on extending Oculus’ existing advantage in gaming to new verticals. Over these years, the tech giant has increased its commitment and streamlined its efforts towards AR and VR.

Facebook launched its first all-in-one VR gaming system Oculus Quest in Spring 2019. This was followed by the launch of Oculus Quest 2 in October 2020. According to IDC data, Facebook’s shipment volume grew 207.4% during 2020 as compared to 2019 as the Quest 2 VR headset remained immensely popular due to the lower price point and need-based demand during the pandemic. Facebook is working on its first AR glasses in partnership with Luxottica, the maker of Ray-Ban and Oakley. The first pair of small glasses from Ray-Ban will be launched this year.

In 2018, Portal was introduced to the Facebook community as a meaningful way to connect with friends and family. Portal gained popularity as it proved to be a great way for people to stay connected, especially during the pandemic. During 2021, Facebook plans on “expanding the role of Portal and virtual reality presence into the workplace—bringing more features that can improve remote presence, collaboration and productivity.”

Facebook’s Spark AR continues to empower its users with exciting possibilities. It was first introduced as the Camera Effects Platform that turned smartphone cameras into the first AR platform in 2017, and was renamed in 2018.

In August 2020, Facebook brought all its AR- and VR-related initiatives under one umbrella called the Facebook Reality Labs (FRL). During the fiscal year 2020 earnings call, Mark Zuckerberg, CEO, Facebook said, “If you look at the history of computing, every 15 years or so a new major platform emerges that integrates technology more naturally and ubiquitously into our lives. I believe that the next logical step here is an immersive computing platform that just delivers this magical sense of presence—that you're really there with another person or in another place. Our phones can't deliver this, and neither can any other technology that has come before it. This is going to unlock the types of social experiences I've dreamed about building since I was a kid, and it's what we're building towards at Facebook Reality Labs.”

Facebook has engaged in a series of acquisitions in the field of AR and VR. Two earlier acquisitions were Pebbles Interfaces (2015) and The Eye Tribe (2016). In 2019, Oculus acquired Beat Games. This was followed by the acquisition of Ready At Dawn—a veteran game developer and a VR pioneer—in June 2020. Downpour Interactive became a part of the Oculus Studios team in April 2021 and it was joined by the BigBox VR team in June. The entire team of Downpour Interactive and BigBox VR have been absorbed by Oculus Studios in some capacity.

During the fiscal 2020, Facebook allocated $18.45 billion equal to 21% of its revenue towards R&D spending. During its Q3 fiscal 2020 call, Facebook highlighted that its R&D increased 34%, driven primarily by hiring and investments in our innovation efforts, notably Facebook Reality Labs, as well as core products. Overall, AR and VR account for a major part of the company’s overall R&D budget growth. The company was granted 938 patents during 2020. During its Q1 2021 earnings call, Facebook’s CFO David Wehner reiterated, “Facebook Reality Labs is one of the major investment drivers in our expense outlook.”

Bain & Company anticipates a 75% adoption rate towards AR or VR by 2023. While according to a global survey, 74% of the participants say that AR and VR can bridge the gap between online and offline. The AR and VR market size is set to grow by $162.71 billion, progressing at a compound annual growth rate (CAGR) of almost 46% during 2021-2025. The global shipments are projected to grow to 28.6 million in 2025 with a 41.4% CAGR. Meanwhile, AR headset shipments are expected to grow 45.6% in 2021 with a CAGR of 138% by 2025.

“Over time, I expect augmented and virtual reality to unlock a massive amount of value both in people's lives and the economy overall,” said Zuckerberg.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared based on information provided in Facebook earning reports, annual reports, website, and blogs. Any exclusions or errors in it are totally unintentional.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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