Daily Management Review

Can virtual reality translate into real profits?


05/18/2016




Can virtual reality translate into real profits?
Real profits from virtual reality are being expected by a growing number of U.S. companies.
 
Virtual reality that so far has mostly been found in video games, is being incorporated by companies ranging from snowmobile manufacturers to furniture sellers simply because growth is hard to come by amid the lethargic economy. The trendy headset-based technology can help them build sales and cut costs is the bet that these companies are relying on. .
 
For example, allowing the company to brand the rides as brand-new without having to build costly new attractions, theme park operator Six Flags Entertainment Corp is outfitting riders on some of its aging roller coasters with Samsung VR headsets.
 
In other examples, while eBay Inc's StubHub is testing technology that allows fans to check out the view from different seats before buying tickets, snowmobile manufacturer Arctic Cat Inc has developed virtual reality rides that customers can use to try out new models at dealerships.
 
Virtual reality as a part of their business plans were high;ighted in the most recent round of corporate earnings reports by some 38 companies including the New York Times Co, GoPro Inc, and furniture-seller Wayfair Inc.
 
According to a Reuters analysis of earnings calls transcripts, from the 8 that did so at this time of the year, the jump this year has been by 375 percent. Suggesting that virtual reality technology has a ways to go before becoming mainstream, nearly all were either consumer or technology companies.
 
While second-quarter earnings are expected to fall 3.4 percent for the S&P 500 from the year before, according to Thomson Reuters estimates, first-quarter earnings for the S&P 500 are expected to fall 5.4 percent from the same time last year and the increasing focus on virtual reality comes amidst market environment.
 
There is however little evidence that virtual reality can deliver substantial growth despite all of the enthusiasm.
 
"It is complementary to places like Six Flags, I would suspect, but not a game changer," said Brain Smoluch, a principal at Hood River Capital Management who owns shares in Himax Technologies Inc, which makes semiconductors used in virtual reality displays.
 
There are few pure plays for investors who want to buy into virtual reality.
 
While well-known companies including Google's parent Alphabet Inc and Apple Inc are rumored to be working on high-powered headsets of their own, Facebook Inc, which paid $2 billion for its Oculus virtual reality division in 2014 and began shipping its first $599 Oculus Rift headsets in March, has the best-known virtual reality head gear. Neither company returned requests to comment.
 
Most analysts do not break out Oculus in their revenue or earnings estimates of Facebook as virtual reality is such a small part of Facebook's business. How many Oculus headsets it expects to sell on its most recent earnings call have also not been made clear by Facebook.
 
"This is very early and we don't expect VR to take off as a mainstream success right away ... but eventually we believe that VR is going to be the next big computing platform and we're making the investments necessary to lead the way there," Chief Executive Mark Zuckerberg said.
 
Some analysts, however, already are seeing a boost to the companies they cover.
 
"I don't think it's possible to break out (the benefit of VR technology) with any sort of precision. But I can tell you that I think they are going to report record results this year because their growth rate is accelerating, and the growth rate wouldn't be accelerating if they didn't have it," said Tyler Batory, an analyst at Janney Montgomery Scott who covers Six Flags.
 
(Source:www.reuters.com) 






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