Facebook Inc. (FB) has boosted production on its Oculus virtual reality (VR) headset to nearly double the production compared to last year.
According to a July 15 report from Nikkei Asian Review, the social media site has reacted to the uptick in COVID-19 cases throughout the world by calling for a production increase in the second half of 2020. This would be an increase of 50% compared to its entire produced amount for all of 2019.
Nikkei’s source says that “the production forecast for the second half of this year could reach at least two million units, which is already around 1.5 times more than its total production output last year.”
Facebook bought Oculus for $2 billion in 2014. Meanwhile, other tech companies have also introduced their VR versions with Sony (SNE) launching its PlayStation VR in 2015. Additionally, HTC, Samsung Electronics, and Huawei Technologies all introduced various types of headsets later using smartphones for VR screens. Despite the competition, Oculus has become the market leader claiming near 35% market share.
On a Q1 earnings call, April 29, Facebook CEO Mark Zuckerberg stated that ad revenue grew 17% annually during the quarter, while its other revenue was “driven primarily by sales of Oculus products.” He stated that Oculus reached $297 million for the quarter which was up 80% from a year ago. According to Zuckerberg, videoconferencing tools could “accelerate some of the trends” in VR despite Oculus’ use being primarily for video games.
In light of the pandemic, game console makers like Nintendo (NTDOY) have experienced increased demand for its portable Nintendo Switch device amidst supply constraints. With government lockdowns in Malaysia and the Philippines, a shortage resulted in parts that led to overall delays in production. Third-party sellers cashed-in on the moment by selling the game device for more than double the price on eBay and Amazon.
Oculus has also struggled to remain on retail shelves with the product immediately selling out upon availability. Zuckerberg addressed this saying, “I wish we could make more of them faster during this period.” He added, “It’s possible that the pandemic accelerates some of the trends around virtual or augmented reality, but I’m not sure what will happen there long term.”
Facebook is expected to unveil a new Oculus headset this month.
Barclays analyst Ross Sandler noted on July 13 that Facebook’s Q2 earnings will become more “balanced and bullish.” He believes the company will benefit from COVID-19 and will continue to outperform its competitors. He reiterated a Buy rating on Facebook’s stock and raised his price target from $260 to $275 which suggests upside potential of 15%.
Facebook’s stock is up 17% year-to-date with a Strong Buy analyst consensus that breaks down into 28 Buy ratings versus 4 Hold ratings and no Sell ratings. The $253.08 average price target implies 6% upside potential for the shares in the coming 12 months. (See Facebook’s stock analysis on TipRanks).
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