Mark Zuckerberg must have been tempering expectations when he commented on Oculus Rift during Facebook's (FB) third-quarter earnings call last year, because analysts at Cantor Fitzgerald see the virtual reality platform as a $1.6 billion revenue generator for the Action Alerts PLUS holding by 2017.
By 2020, Oculus Rift could account for 10% of Facebook's overall revenue, according to the analysts.
During that earnings call, the social network's CEO said that he expects virtual reality (VR) and augmented reality (AR) to have a slow consumer adoption rate, similar to the first smartphones that came out and only sold in the hundreds of thousands of units in their first year. The Oculus Rift began shipping units Monday of this week, three months after the company began taking pre-orders for the virtual reality headset.
"Pre-orders are going much better than I ever could have possibly expected," Oculus founder Palmer Luckey said at the Consumer Electronics Show in January. "There are a lot of people who are getting into virtual reality that I think are not even necessarily the gamers who have been waiting; they're just hearing about it now or hearing about it recently and they're convinced enough to pre-order. Hopefully they're convinced enough to actually use it."
While the company has been tight-lipped about hard numbers concerning the pre-orders, Luckey did tell computer gaming website Polygon that the company "sold through" the inventory that they expected to sell over a few hours in just 10 minutes.
Cantor Fitzgerald expects Oculus to sell 667,000 Rift headsets this year, generating about $400 million in revenue. Next year, the firm expects revenue to quadruple to $1.6 billion, and by the end of the decade sales are expected to reach $6.6 billion.
"In addition to hardware sales, Facebook should also benefit from royalty fees from videogame sales. Over time, the Rift (and its subsequent derivatives) could generate $7B in revenue for Facebook by 2020, or 10% of overall revenue," according to Cantor Fitzgerald's note. "While we're not baking VR projections in our FB estimates yet, as they start materializing, we believe they could provide upward bias to our and Street projections over time."
Facebook does not see Oculus sales being material to this year's bottom line, but the company has super-sized ambitions for its VR and AR platforms in the future.
"We think gaming is the most obvious market," Zuckerberg said of Oculus' potential during the third-quarter call. "There are 200 million to 250 million people in the world that have a [game console] and those are the people who are going to be interested in the kinds of experiences you can have in VR.
"We're thinking about video and immersive experiences," he said. "But until there are millions of units in the market, I don't expect people to invest heavily in producing that content. And once it has reached the level of the next computing platform, we think it'll be used primarily as a communication platform -- and that's what we're really excited about."
While Oculus made it to shelves first and is not the most expensive VR headset on the market at $599, it will soon be joined by HTC's Vive headset, scheduled for release April 5 with a $799 price point. Later this year Sony (SNE) is scheduled to release a PlayStation VR headset that will retail for $399.
With increasing competition and questions about the viability of the market , only time will tell whether Facebook can make this projected virtual revenue growth a reality.