66f35aa5
2021-09-14
Better be cautious
Reality Labs Will Take Facebook's Stock To New Dimensions
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":882002540,"tweetId":"882002540","gmtCreate":1631628947980,"gmtModify":1631889758860,"author":{"id":3585027190392565,"idStr":"3585027190392565","authorId":3585027190392565,"authorIdStr":"3585027190392565","name":"66f35aa5","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":13,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Better be cautious</p></body></html>","htmlText":"<html><head></head><body><p>Better be cautious</p></body></html>","text":"Better be cautious","highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/882002540","repostId":1154654295,"repostType":4,"repost":{"id":"1154654295","pubTimestamp":1631628836,"share":"https://www.laohu8.com/m/news/1154654295?lang=&edition=full","pubTime":"2021-09-14 22:13","market":"us","language":"en","title":"Reality Labs Will Take Facebook's Stock To New Dimensions","url":"https://stock-news.laohu8.com/highlight/detail?id=1154654295","media":"Seeking Alpha","summary":"Summary\n\nFacebook has nearly 10,000 employees working in its Reality Labs, its AR/VR division, that ","content":"<p><b>Summary</b></p>\n<ul>\n <li>Facebook has nearly 10,000 employees working in its Reality Labs, its AR/VR division, that is working to unlock extended reality.</li>\n <li>Facebook is known to make strategic acquisitions like WhatsApp and Instagram, but recent acquisitions of extended reality start-ups like Unit 2 Games and CTRL-Labs give Facebook an advantage.</li>\n <li>Facebook is releasing a pair of AR glasses with Ray-Ban this fall and will be the company's first product of this kind.</li>\n <li>Based on our valuation, Reality Labs is worth $78 billion today and will easily reach $350 billion by 2031.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/67e07ac54d4cb0f68e1684a383778797\" tg-width=\"1536\" tg-height=\"1024\" referrerpolicy=\"no-referrer\"><span>FatCamera/E+ via Getty Images</span></p>\n<p><b>Investment Thesis</b></p>\n<p>Since Facebook(NASDAQ:FB)was founded, its rise to social media and internet giant has made its platforms extremely attractive for advertisers. The Facebook, Instagram, and WhatsApp platforms are all unique, and Facebook has a fortress of holdings in which it's building a defensible moat centered around digital advertising. While Facebook's three main social platforms are thriving and the company is expanding its monetization of each platform, Oculus is where the company is investing most aggressively and represents Facebook's best opportunity to ignite hockey-stick growth over the next 10 to 20 years.</p>\n<p>Facebook has nearly 10,000 employees working in its Reality Labs division, its virtual reality and augmented reality departments, and Mark Zuckerberg remains adamant that extended reality (XR) will be a tremendous part of Facebook's future and people's everyday lives.</p>\n<blockquote>\n Imagine enjoying a courtside seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face - just by putting on goggles in your home. Virtual Reality is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.\" - Mark Zuckerberg'sFacebook PostAnnouncing the Oculus Acquisition in 2014\n</blockquote>\n<p>Zuckerberg's vision for XR fits in with his master plans for Facebook to enable the metaverse to operate by providing the hardware as well as the operating system for an inclusive social ecosystem. To an extent, Facebook's pivot into XR embodies Apple's(NASDAQ:AAPL)rise of the original iPhone. Facebook is already the most popular social media company, similar to Apple's role in the PC market before it launched the iPhone, and when Apple launched the iPhone, it expanded internet capabilities from computers to mobile phones and went on to change the way society uses mobile devices.</p>\n<p>Zuckerberg envisions that XR will have a similar effect to the iPhone as XR will revolutionize the way that people can interact, and Facebook's Reality Labs is primed to provide the ecosystem and its infrastructure to extend the concept of reality. Facebook is the leader in the XR market and strategically acquiring game developers, smaller XR players, and making partnerships to unlock the metaverse ecosystem, making it undervalued below $500.</p>\n<p><b>Facebook Had Its Eye On XR Since 2014</b></p>\n<p>Since Facebook acquired Oculus, it has pioneered the virtual reality space by annually releasing new hardware models with significant improvements and that's making extended reality accessible, the Oculus Quest 2 starts at $299 on Amazon. Below is the evolution of Oculus hardware.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/862371ab78027c05a91d77c1ec2f2962\" tg-width=\"632\" tg-height=\"367\" referrerpolicy=\"no-referrer\"><span>Source: www.reddit.com/oculus</span></p>\n<p>Oculus Quest 2 is extremely popular as indicated by its sales and that Oculus 2 is the first item that appears when you search \"virtual reality\" on the most popular e-commerce sites like Amazon, Best Buy, Target, and Walmart. The Oculus 2 has been described by techradar.com as possibly the \"best VR headset ever\" and Facebook isn't looking to slow the momentum for its Reality Labs division.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/93a1f8274a0679e62662332e974a27cf\" tg-width=\"640\" tg-height=\"436\" referrerpolicy=\"no-referrer\"><span>Source: www.statista.com</span></p>\n<p>Above are Oculus sales from the last quarter of 2020 and the first of 2021. The next leading VR headset for Q4 of 2020 was PlayStation VR, which sold 125,000, a small fraction of Oculus 2 sales during that period of over a million units. Oculus is clearly dominating the VR market, hence it's no surprise that Facebook captured such a high percentage of XR market share to end 2020.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/802037893b67bc6581ae5ebfb078e9bc\" tg-width=\"640\" tg-height=\"718\" referrerpolicy=\"no-referrer\"><span>Digital Information World</span></p>\n<p>Facebook has cemented itself as a clear leader in the XR market and its investments over the past seven years result in Facebook capturing the most market share. However, Facebook is still extremely early in its pursuit of the optimal XR experience.</p>\n<p>Facebook is developing future hardware, which will probably be the Oculus 3, but Facebook is ensuring that applications ran on Quest 2 will be forward compatible with future models.</p>\n<blockquote>\n We're continuing to work on new hardware [which] will fit the same platform, so the content that works on Quest 2 should be forward-compatible so that we're going to build one larger install base around the virtual reality headsets that we have.\"Zuckerberg\n</blockquote>\n<p>As Facebook develops a new OS for its hardware, it will offer updates similar to iOS for the iPhone as Apple updates iOS every fall. This provides Facebook with an ideal opportunity to unveil OS updates that capitalize on integrating new technology which is still compatible with previous models. Games previously compatible with Oculus Quest or Rift will still be available on new models. This means that Facebook is just getting started in this space, especially since it is strengthening its XR ecosystem by partnering with highly sought brands.</p>\n<p><b>Strategic Acquisitions & Partnerships</b></p>\n<p>Facebook is strategically acquiring and partnering with winning companies that will help normalize the extension of reality for society. In this section, I will highlight three of Facebook's prior acquisitions and its upcoming partnership with Ray-Ban.</p>\n<p>BigBox VR develops games that combine social communities and competitive gaming to create virtual reality e-sports ecosystems. Facebook announced the acquisition in June of 2021 and BigBox VR will operate independently of Facebook while it will still be supported on the current platforms it's running on. Its two most popular games are described below.</p>\n<ul>\n <li>Smashbox Arena: an early hit for VR, which launched in 2016, is a tame-based action game</li>\n <li>Population: ONE: a breakout battle royal game that is reminiscent of Fortnite for VR</li>\n</ul>\n<p>Unit 2 Games is a game developer that is truly democratizing game creation by making it accessible and easy to use for everyone, even if you don't have prior coding experience. Unit 2 Games will also bring \"maximized current-cloudstreaming technology\" that will improve the accessibility of the Reality Labs game creation process. This platform is similar to Roblox(NYSE:RBLX)as it engages both gamers and developers while drawing users to the platform.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/9fc35e02ddf97a6b4f983a87749938c2\" tg-width=\"640\" tg-height=\"297\" referrerpolicy=\"no-referrer\"><span>Source: Home | Unit 2 Games</span></p>\n<p>Unit 2 Games' collaborative nature is similar to Facebook or Instagram's social media effect as developers create a game, they want to tell their friends about it and essentially draw people to the platform. This is starting to represent the metaverse that Zuckerberg envisions, as the ecosystem is developing and fostering a social gathering, but in order to achieve the full benefits of XR, Facebook is investing in its hardware and technology.</p>\n<p>CTRL-Labs is a neural interface startup that is striving to bridge the gap between the brain and expressing outputs so that the brain can directly communicate with machines through nerves. CTRL-Labs was started by two neuroscientists with the intention that people will not use devices nor accessories to communicate with devices making keyboards, swipe screens, and controllers one day obsolete. Facebook was working on technology that would enable one's devices to essentially read your brain but recently put this initiative on hold to focus ona neural interfaceapproach that is faster to bring to market than a brain-reading device. Facebook still thinks this is possible one day in the future. The video below illustrates the innovation that CTRL-Labs and Facebook are making possible.</p>\n<p>These acquisitions prove that Facebook is expanding Reality Labs by acquiring the most popular XR gaming developers as well as the companies that are focused on specific components of XR. Facebook has made other acquisitions similar to these in the past as well. Scape Technologies is a computer vision company that develops location accuracy beyond the capabilities of GPS and it's similar to the CTRL-Labs acquisition as they both offer Facebook new XR programs. By Facebook acquiring these types of companies, it integrates<i>its new</i>technology with Reality Labs, which is already thriving. Other video game developers that Facebook has acquired include Downward Interactive,Beat Saber, and Ready at Dawn.</p>\n<p><b>Ray-Ban</b></p>\n<p>In 2020, Luxottica announced a multi-year partnership that would start with the release of a \"next-generation\" Ray-Ban AR product sometime this fall. This is Facebook's first smart glasses product, and this model won't be fully AR, which is still a few years off, but it is a positive sign that the collaboration with Luxottica could strengthen over time as Facebook improves its AR technology. Facebook ensures that its AR glasses will have a recognizable style by partnering with Ray-Ban and by making the product affordable, it could go a long way in extending how people start to utilize AR by making it accessible.</p>\n<blockquote>\n \"Our business model isn't going to primarily be around trying to sell devices at a large premium or anything like that because our mission is around serving as many people as possible. So, we want to make everything that we do as affordable as possible, so as many people as possible can get into it and then compounds the size of the digital economy inside it. So that's kind of at a high level how I'm thinking about this.\" - Zuckerberg\n</blockquote>\n<p>Clearly, Zuckerberg has quite the vision for XR and the metaverse and it all starts with new products that will revolutionize the way that industries are created. Apple may have developed the iPhone and iPad, essentially expanding the internet to mobile devices, so why can't Facebook do the same for the extension of reality? Zuckerberg is just the leader to accomplish this, and Reality Labs is making great strides, the Ray-Ban partnership could move the needle in terms of normalizing features of extended reality. Facebook's investments and roster of nearly 10,000 Reality Lab employees indicate that its dominance in XR is just getting started.</p>\n<p><b>Revenue</b></p>\n<p>The XR market was $26 billion in 2020 and it's reasonable to assume that Reality Labs, mainly Oculus, generated about $1.9 billion in TTM revenue. Facebook doesn't break down its revenue for its XR products in its financial documents, so investors must predict what Facebook's XR revenues are in order to value this component of Facebook. Facebook generated $2.36 billion in \"other revenue\" in the last 12 months and this revenue is mainly comprised of Oculus sales, therefore ~$1.9 billion represents an accurate reflection of Reality Labs' TTM revenue.</p>\n<p>The XR market is expected to rise to $905 billion by 2027, growing at a 66% CAGR. This represents a huge opportunity for Facebook. Oculus Quest 2 was released in the third quarter of 2020, which contributed to the rise in Facebook's \"other revenue\" segment, meaning Facebook captured ~7.5% of the total XR market in 2020. If Facebook increases its market share to 15% by 2027, its XR division could generate over $135 billion in revenue. This would result in a massive increase in revenue and free cash flow for Facebook. Given the size of this addressable market, Facebook has plenty of market share to capture as it continues to release new devices and strategically acquire the developers of the applications running in its XR operating system.</p>\n<p>Now, we'll analyze the value of Reality Labs as it were independent of Facebook.</p>\n<p><b>Reality Labs Valuation</b></p>\n<p>To determine a fair value for Facebook's XR division on a standalone basis, we'll deploy the L.A. Stevens Valuation Model. The model consists of, first, a discounted cash flow model to assist in identifying Reality Labs' value today. Additionally, the model uses the growth of free cash flow per share to determine Reality Labs' 10-year price target, and thereby, market cap, allowing us to project its growth over the next 10 years.</p>\n<p>Assumptions:</p>\n<table>\n <tbody>\n <tr>\n <td><p>2021E revenue [A] (conservative estimate)</p></td>\n <td><p>$2 B</p></td>\n </tr>\n <tr>\n <td><p>Potential Free Cash Flow Margin [B]</p></td>\n <td><p>30%</p></td>\n </tr>\n <tr>\n <td><p>Average fully-diluted shares outstanding [C]</p></td>\n <td><p>~2.888 B</p></td>\n </tr>\n <tr>\n <td><p>Free cash flow per share [ D = (A * B) / C ]</p></td>\n <td><p>$0.207</p></td>\n </tr>\n <tr>\n <td><p>Free cash flow per share growth rate (conservative estimate)</p></td>\n <td><p>32.5%</p></td>\n </tr>\n <tr>\n <td><p>Terminal growth rate</p></td>\n <td><p>3%</p></td>\n </tr>\n <tr>\n <td><p>Years of elevated growth</p></td>\n <td><p>10</p></td>\n </tr>\n <tr>\n <td><p>Total years to stimulate</p></td>\n <td><p>100</p></td>\n </tr>\n <tr>\n <td><p>Discount Rate (Our \"Next Best Alternative\")</p></td>\n <td><p>9.8%</p></td>\n </tr>\n </tbody>\n</table>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/c50913395510663125120a9e1c2de826\" tg-width=\"640\" tg-height=\"498\" width=\"100%\" height=\"auto\"><span>Source: L.A. Stevens Valuation Model</span></p>\n<p>Based on conservative estimates, Reality Labs is worth ~$78 billion of Facebook's current market cap today. In order to determine if Reality Labs is worth investing in today, we'll predict the expected return of Reality Labs over the next 10 years.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/bc1a0a0832139a1faadba340c072158c\" tg-width=\"640\" tg-height=\"455\" width=\"100%\" height=\"auto\"><span>Source: L.A. Stevens Valuation Model</span></p>\n<p>Based on our model, Reality Labs will be worth ~$350 billion by 2031 which would generate a 16% return from its current value today. Given that Reality Labs' value is expected to nearly quadruple over the 10 years, it will be a significant contributor to Facebook's future revenues.</p>\n<p>For this valuation, we are anticipating that Reality Labs will generate $33.3 billion in revenue by 2031, which represents only a fraction of the future XR market, which will be worth over $900 billion by 2027. Hence, this is extremely conservative.</p>\n<p><b>Margin of Safety</b></p>\n<p>Facebook doesn't break down the cost of its \"other revenue\" as well in its financial documents as well, so for this valuation, I assumed that the Reality Labs division sports a 30% free cash flow margin and based on Facebook's 81% gross profit margin, this is attainable over the long run. I also used a 32.5% growth rate over the next 10 years as the XR market is growing rapidly and Facebook has no plans to slow XR product releases over the near future, as highlighted by the Luxottica partnership.</p>\n<p><b>Risks</b></p>\n<p>If Facebook were to succeed in developing the best XR hardware and software (i.e. game developers), then Facebook will surely face antitrust lawsuits as it will be viewed as a monopoly, when it comes to enabling the extension of reality. If Facebook capitalizes on its acquisitions to foster the future of XR, then it could face anti-trust lawsuits similar to the charges it faced five years after acquiring Instagram.</p>\n<p>This could present real challenges down the line for Facebook, but one way for FB to navigate these obstacles could be integrating blockchain applications so that the largest companies like Microsoft(NASDAQ:MSFT), Netflix(NASDAQ:NFLX), Google(NASDAQ:GOOG)(NASDAQ:GOOGL), and even Facebook itself, won't own all the things that people buy or the platforms they use. Blockchain represents a decentralized central ledger that allows individuals to own and manage their data within Reality Labs' extension of the internet. Zuckerberg has shown interest in adopting blockchain applications for Facebook, but it's early to speculate as Zuckerberg has made no clear intentions around Facebook's goals around blockchain.</p>\n<p><b>Conclusion</b></p>\n<p>Facebook is one of this decade's leading tech and will continue to improve the way that humans seamlessly communicate through using applications of the internet. All of this feels like it's a part of Zuckerberg's vision when he started the original Facebook platform. With a visionary leader at the helm and Reality Labs' current position in the XR market, Facebook is extremely undervalued today.</p>\n<p>Facebook is pioneering the XR market and with its ambitions to break barriers and make XR fun, socially acceptable, and affordable, it is slowly creating the iPhone of extended reality. I am extremely bullish on Facebook and its Reality Labs division and anticipate that XR becomes a part of our daily lives over the next couple of years, thanks to Facebook.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Reality Labs Will Take Facebook's Stock To New Dimensions</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nReality Labs Will Take Facebook's Stock To New Dimensions\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-14 22:13 GMT+8 <a href=https://seekingalpha.com/article/4454710-reality-labs-take-facebook-stock-to-new-dimensions><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nFacebook has nearly 10,000 employees working in its Reality Labs, its AR/VR division, that is working to unlock extended reality.\nFacebook is known to make strategic acquisitions like ...</p>\n\n<a href=\"https://seekingalpha.com/article/4454710-reality-labs-take-facebook-stock-to-new-dimensions\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{},"source_url":"https://seekingalpha.com/article/4454710-reality-labs-take-facebook-stock-to-new-dimensions","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1154654295","content_text":"Summary\n\nFacebook has nearly 10,000 employees working in its Reality Labs, its AR/VR division, that is working to unlock extended reality.\nFacebook is known to make strategic acquisitions like WhatsApp and Instagram, but recent acquisitions of extended reality start-ups like Unit 2 Games and CTRL-Labs give Facebook an advantage.\nFacebook is releasing a pair of AR glasses with Ray-Ban this fall and will be the company's first product of this kind.\nBased on our valuation, Reality Labs is worth $78 billion today and will easily reach $350 billion by 2031.\n\nFatCamera/E+ via Getty Images\nInvestment Thesis\nSince Facebook(NASDAQ:FB)was founded, its rise to social media and internet giant has made its platforms extremely attractive for advertisers. The Facebook, Instagram, and WhatsApp platforms are all unique, and Facebook has a fortress of holdings in which it's building a defensible moat centered around digital advertising. While Facebook's three main social platforms are thriving and the company is expanding its monetization of each platform, Oculus is where the company is investing most aggressively and represents Facebook's best opportunity to ignite hockey-stick growth over the next 10 to 20 years.\nFacebook has nearly 10,000 employees working in its Reality Labs division, its virtual reality and augmented reality departments, and Mark Zuckerberg remains adamant that extended reality (XR) will be a tremendous part of Facebook's future and people's everyday lives.\n\n Imagine enjoying a courtside seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face - just by putting on goggles in your home. Virtual Reality is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.\" - Mark Zuckerberg'sFacebook PostAnnouncing the Oculus Acquisition in 2014\n\nZuckerberg's vision for XR fits in with his master plans for Facebook to enable the metaverse to operate by providing the hardware as well as the operating system for an inclusive social ecosystem. To an extent, Facebook's pivot into XR embodies Apple's(NASDAQ:AAPL)rise of the original iPhone. Facebook is already the most popular social media company, similar to Apple's role in the PC market before it launched the iPhone, and when Apple launched the iPhone, it expanded internet capabilities from computers to mobile phones and went on to change the way society uses mobile devices.\nZuckerberg envisions that XR will have a similar effect to the iPhone as XR will revolutionize the way that people can interact, and Facebook's Reality Labs is primed to provide the ecosystem and its infrastructure to extend the concept of reality. Facebook is the leader in the XR market and strategically acquiring game developers, smaller XR players, and making partnerships to unlock the metaverse ecosystem, making it undervalued below $500.\nFacebook Had Its Eye On XR Since 2014\nSince Facebook acquired Oculus, it has pioneered the virtual reality space by annually releasing new hardware models with significant improvements and that's making extended reality accessible, the Oculus Quest 2 starts at $299 on Amazon. Below is the evolution of Oculus hardware.\nSource: www.reddit.com/oculus\nOculus Quest 2 is extremely popular as indicated by its sales and that Oculus 2 is the first item that appears when you search \"virtual reality\" on the most popular e-commerce sites like Amazon, Best Buy, Target, and Walmart. The Oculus 2 has been described by techradar.com as possibly the \"best VR headset ever\" and Facebook isn't looking to slow the momentum for its Reality Labs division.\nSource: www.statista.com\nAbove are Oculus sales from the last quarter of 2020 and the first of 2021. The next leading VR headset for Q4 of 2020 was PlayStation VR, which sold 125,000, a small fraction of Oculus 2 sales during that period of over a million units. Oculus is clearly dominating the VR market, hence it's no surprise that Facebook captured such a high percentage of XR market share to end 2020.\nDigital Information World\nFacebook has cemented itself as a clear leader in the XR market and its investments over the past seven years result in Facebook capturing the most market share. However, Facebook is still extremely early in its pursuit of the optimal XR experience.\nFacebook is developing future hardware, which will probably be the Oculus 3, but Facebook is ensuring that applications ran on Quest 2 will be forward compatible with future models.\n\n We're continuing to work on new hardware [which] will fit the same platform, so the content that works on Quest 2 should be forward-compatible so that we're going to build one larger install base around the virtual reality headsets that we have.\"Zuckerberg\n\nAs Facebook develops a new OS for its hardware, it will offer updates similar to iOS for the iPhone as Apple updates iOS every fall. This provides Facebook with an ideal opportunity to unveil OS updates that capitalize on integrating new technology which is still compatible with previous models. Games previously compatible with Oculus Quest or Rift will still be available on new models. This means that Facebook is just getting started in this space, especially since it is strengthening its XR ecosystem by partnering with highly sought brands.\nStrategic Acquisitions & Partnerships\nFacebook is strategically acquiring and partnering with winning companies that will help normalize the extension of reality for society. In this section, I will highlight three of Facebook's prior acquisitions and its upcoming partnership with Ray-Ban.\nBigBox VR develops games that combine social communities and competitive gaming to create virtual reality e-sports ecosystems. Facebook announced the acquisition in June of 2021 and BigBox VR will operate independently of Facebook while it will still be supported on the current platforms it's running on. Its two most popular games are described below.\n\nSmashbox Arena: an early hit for VR, which launched in 2016, is a tame-based action game\nPopulation: ONE: a breakout battle royal game that is reminiscent of Fortnite for VR\n\nUnit 2 Games is a game developer that is truly democratizing game creation by making it accessible and easy to use for everyone, even if you don't have prior coding experience. Unit 2 Games will also bring \"maximized current-cloudstreaming technology\" that will improve the accessibility of the Reality Labs game creation process. This platform is similar to Roblox(NYSE:RBLX)as it engages both gamers and developers while drawing users to the platform.\nSource: Home | Unit 2 Games\nUnit 2 Games' collaborative nature is similar to Facebook or Instagram's social media effect as developers create a game, they want to tell their friends about it and essentially draw people to the platform. This is starting to represent the metaverse that Zuckerberg envisions, as the ecosystem is developing and fostering a social gathering, but in order to achieve the full benefits of XR, Facebook is investing in its hardware and technology.\nCTRL-Labs is a neural interface startup that is striving to bridge the gap between the brain and expressing outputs so that the brain can directly communicate with machines through nerves. CTRL-Labs was started by two neuroscientists with the intention that people will not use devices nor accessories to communicate with devices making keyboards, swipe screens, and controllers one day obsolete. Facebook was working on technology that would enable one's devices to essentially read your brain but recently put this initiative on hold to focus ona neural interfaceapproach that is faster to bring to market than a brain-reading device. Facebook still thinks this is possible one day in the future. The video below illustrates the innovation that CTRL-Labs and Facebook are making possible.\nThese acquisitions prove that Facebook is expanding Reality Labs by acquiring the most popular XR gaming developers as well as the companies that are focused on specific components of XR. Facebook has made other acquisitions similar to these in the past as well. Scape Technologies is a computer vision company that develops location accuracy beyond the capabilities of GPS and it's similar to the CTRL-Labs acquisition as they both offer Facebook new XR programs. By Facebook acquiring these types of companies, it integratesits newtechnology with Reality Labs, which is already thriving. Other video game developers that Facebook has acquired include Downward Interactive,Beat Saber, and Ready at Dawn.\nRay-Ban\nIn 2020, Luxottica announced a multi-year partnership that would start with the release of a \"next-generation\" Ray-Ban AR product sometime this fall. This is Facebook's first smart glasses product, and this model won't be fully AR, which is still a few years off, but it is a positive sign that the collaboration with Luxottica could strengthen over time as Facebook improves its AR technology. Facebook ensures that its AR glasses will have a recognizable style by partnering with Ray-Ban and by making the product affordable, it could go a long way in extending how people start to utilize AR by making it accessible.\n\n \"Our business model isn't going to primarily be around trying to sell devices at a large premium or anything like that because our mission is around serving as many people as possible. So, we want to make everything that we do as affordable as possible, so as many people as possible can get into it and then compounds the size of the digital economy inside it. So that's kind of at a high level how I'm thinking about this.\" - Zuckerberg\n\nClearly, Zuckerberg has quite the vision for XR and the metaverse and it all starts with new products that will revolutionize the way that industries are created. Apple may have developed the iPhone and iPad, essentially expanding the internet to mobile devices, so why can't Facebook do the same for the extension of reality? Zuckerberg is just the leader to accomplish this, and Reality Labs is making great strides, the Ray-Ban partnership could move the needle in terms of normalizing features of extended reality. Facebook's investments and roster of nearly 10,000 Reality Lab employees indicate that its dominance in XR is just getting started.\nRevenue\nThe XR market was $26 billion in 2020 and it's reasonable to assume that Reality Labs, mainly Oculus, generated about $1.9 billion in TTM revenue. Facebook doesn't break down its revenue for its XR products in its financial documents, so investors must predict what Facebook's XR revenues are in order to value this component of Facebook. Facebook generated $2.36 billion in \"other revenue\" in the last 12 months and this revenue is mainly comprised of Oculus sales, therefore ~$1.9 billion represents an accurate reflection of Reality Labs' TTM revenue.\nThe XR market is expected to rise to $905 billion by 2027, growing at a 66% CAGR. This represents a huge opportunity for Facebook. Oculus Quest 2 was released in the third quarter of 2020, which contributed to the rise in Facebook's \"other revenue\" segment, meaning Facebook captured ~7.5% of the total XR market in 2020. If Facebook increases its market share to 15% by 2027, its XR division could generate over $135 billion in revenue. This would result in a massive increase in revenue and free cash flow for Facebook. Given the size of this addressable market, Facebook has plenty of market share to capture as it continues to release new devices and strategically acquire the developers of the applications running in its XR operating system.\nNow, we'll analyze the value of Reality Labs as it were independent of Facebook.\nReality Labs Valuation\nTo determine a fair value for Facebook's XR division on a standalone basis, we'll deploy the L.A. Stevens Valuation Model. The model consists of, first, a discounted cash flow model to assist in identifying Reality Labs' value today. Additionally, the model uses the growth of free cash flow per share to determine Reality Labs' 10-year price target, and thereby, market cap, allowing us to project its growth over the next 10 years.\nAssumptions:\n\n\n\n2021E revenue [A] (conservative estimate)\n$2 B\n\n\nPotential Free Cash Flow Margin [B]\n30%\n\n\nAverage fully-diluted shares outstanding [C]\n~2.888 B\n\n\nFree cash flow per share [ D = (A * B) / C ]\n$0.207\n\n\nFree cash flow per share growth rate (conservative estimate)\n32.5%\n\n\nTerminal growth rate\n3%\n\n\nYears of elevated growth\n10\n\n\nTotal years to stimulate\n100\n\n\nDiscount Rate (Our \"Next Best Alternative\")\n9.8%\n\n\n\nSource: L.A. Stevens Valuation Model\nBased on conservative estimates, Reality Labs is worth ~$78 billion of Facebook's current market cap today. In order to determine if Reality Labs is worth investing in today, we'll predict the expected return of Reality Labs over the next 10 years.\nSource: L.A. Stevens Valuation Model\nBased on our model, Reality Labs will be worth ~$350 billion by 2031 which would generate a 16% return from its current value today. Given that Reality Labs' value is expected to nearly quadruple over the 10 years, it will be a significant contributor to Facebook's future revenues.\nFor this valuation, we are anticipating that Reality Labs will generate $33.3 billion in revenue by 2031, which represents only a fraction of the future XR market, which will be worth over $900 billion by 2027. Hence, this is extremely conservative.\nMargin of Safety\nFacebook doesn't break down the cost of its \"other revenue\" as well in its financial documents as well, so for this valuation, I assumed that the Reality Labs division sports a 30% free cash flow margin and based on Facebook's 81% gross profit margin, this is attainable over the long run. I also used a 32.5% growth rate over the next 10 years as the XR market is growing rapidly and Facebook has no plans to slow XR product releases over the near future, as highlighted by the Luxottica partnership.\nRisks\nIf Facebook were to succeed in developing the best XR hardware and software (i.e. game developers), then Facebook will surely face antitrust lawsuits as it will be viewed as a monopoly, when it comes to enabling the extension of reality. If Facebook capitalizes on its acquisitions to foster the future of XR, then it could face anti-trust lawsuits similar to the charges it faced five years after acquiring Instagram.\nThis could present real challenges down the line for Facebook, but one way for FB to navigate these obstacles could be integrating blockchain applications so that the largest companies like Microsoft(NASDAQ:MSFT), Netflix(NASDAQ:NFLX), Google(NASDAQ:GOOG)(NASDAQ:GOOGL), and even Facebook itself, won't own all the things that people buy or the platforms they use. Blockchain represents a decentralized central ledger that allows individuals to own and manage their data within Reality Labs' extension of the internet. Zuckerberg has shown interest in adopting blockchain applications for Facebook, but it's early to speculate as Zuckerberg has made no clear intentions around Facebook's goals around blockchain.\nConclusion\nFacebook is one of this decade's leading tech and will continue to improve the way that humans seamlessly communicate through using applications of the internet. All of this feels like it's a part of Zuckerberg's vision when he started the original Facebook platform. With a visionary leader at the helm and Reality Labs' current position in the XR market, Facebook is extremely undervalued today.\nFacebook is pioneering the XR market and with its ambitions to break barriers and make XR fun, socially acceptable, and affordable, it is slowly creating the iPhone of extended reality. I am extremely bullish on Facebook and its Reality Labs division and anticipate that XR becomes a part of our daily lives over the next couple of years, thanks to Facebook.","news_type":1},"isVote":1,"tweetType":1,"viewCount":108,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":16,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/882002540"}
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