This week, Facebook, Inc. (Nasdaq: FB) provided shareholders with a handful of updates related to its virtual reality initiatives. Despite Facebook’s overwhelming success in the online advertising business, more Oculus Rift price cuts are evidence the Facebook VR story is not going according to plan.
Many Facebook investors expected VR to be a major revenue driver for Facebook back in 2014 when the company acquired VR platform Oculus for $2 billion. Three years later, VR technology has yet to gain mainstream traction.
At Facebook’s annual Oculus Connect developer conference on Wednesday, CEO Mark Zuckerberg announced Facebook is reducing the price of its Rift device to $399. The news marks the third Rift price cut since the device was launched roughly a year and a half ago at an original price of $599. Facebook sold less than 400,000 Rift devices in 2016.
[Read: 10 Reasons Why Everyone Should Own Facebook Stock.]
In addition to the price cuts, Zuckerberg announced a new $199 Oculus Go headset will be available in early 2018. Zuckerberg said the Oculus Go is Facebook’s response to the Samsung Electronic $129 Gear VR device.
Facebook is also developing the next generation Rift, nicknamed “Santa Cruz.”
Bank of America analyst Justin Post says Facebook is attempting to jump-start its virtual reality business and gain market share at the expense of profits. “Facebook appears focused on seeding VR adoption with lower entry prices and growing content, and we believe the company is well-positioned to be a leader in the sector,” Post says.
The low-end, wireless Oculus Go seems impressive, but its motion capture capability and battery life remain unknowns. In addition, the prospect of a high-end Santa Cruz offering in the works could discourage potential Oculus Go buyers.
[Read: Facebook Brings the Fight to Social Media Foes.]
Post says recent business partnerships with Audi, DHL and Cisco Systems ( CSCO) could help seed interest in Facebook’s VR products. But for now, Facebook investors shouldn’t expect VR to be a meaningful financial contributor.
“We believe hardware adoption and software development have trailed early expectations, and we don’t expect a material financial contribution or stock catalyst from Oculus in the medium-term (12-18 months).”
Bank of America has a “buy” rating and $190 price target for Facebook stock.
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Facebook, Inc. (FB) Isn’t Getting VR Traction originally appeared on usnews.com
